Modern legal technology is helping lawyers deliver more efficient service, while also quantifying their efforts and expenses more granularly than ever. This data can be used to improve your firm’s profitability even with a reduction in overall pricing, by enabling your clients to share the cost of efficiency upgrades.
But before you get to overhauling your billing process, it’s important to understand your ethical obligations, and the challenges involved in tracking and passing through technology expenses.
The ethical questions
It’s been nearly 10 years since the ABA amended Model Rule 1.1 to include the use of technology in its list of professional competencies expected of an attorney. If you’re still doing back-of-the-napkin calculations to track business and client expenses, you’re not just creating significantly more work for yourself—you’re also failing to meet an ethical obligation to work as efficiently as you can with the tools available to you.
In Rule 1.5, the ABA also establishes some ethical guidelines for how and when to bill clients.
Arguably the most immutable of these is the recommendation that whatever your fee arrangement may be, it must be clearly outlined to your client in writing. That’s an area that is unlikely to affected by changes in the way law firms operate or serve customers.
Much of the rest of Rule 1.5 addresses how to ensure a fee is “reasonable.” As legal services and the way clients pay for them has clearly evolved substantially since Rule 1.5 was drafted, this is an area where some states are making adjustments.
Legal fees typically fall into three categories:
- Fixed: Fees that are charged regardless of the outcome of the case.
- Contingent: Fees that may be charged (with some restrictions) or waived based on the outcome of the case.
- Shared: Fees that may be shared in some circumstances with attorneys outside the firm that is billing.
Though Rule 1.5 does not direct reference to what might be considered a reasonable attorney expense that can be passed on to the client, it does seem to imply that the passing of such expenses can be considered reasonable. According to Rule 1.5 (c),
“The [written] agreement must clearly notify the client of any expenses for which the client will be liable whether or not the client is the prevailing party.”
The challenge of passing through software expenses
Legal software can assist tremendously with making your law practice more efficient, reducing the degree to which work on a particular matter precludes you from spending time on others.
Because use of software often drives down the overall expense of delivering legal services—and especially because some expenses like payment processing fees may be unavoidable—it can be reasonable to claim the cost of the software you use to complete client work if it is stipulated in writing.
While it may be ethical to claim technology expenses, it can often be a challenge to divide them equitably amongst clients during the billing process.
Many legal software programs bill on a monthly or annual subscription basis. To be fairly compensated for the benefits of using subscription software on a matter, a firm would have to devise some method of proportionally dividing the subscription fee for each term by the amount of client work that was performed using the software during that term—a tricky proposition even for an accountant.
If the software offers time tracking, it may be slightly more realistic to arrive at this value with a universally applicable formula. However, even in this ideal scenario, the calculations involved would likely be complex and somewhat subjective. It’s fair to say they might not withstand scrutiny by a client who nitpicks over each bill.
A far more preferable setup is to use software that charges you by transaction, with documentation for each order that can be easily attributed to a specific client and/or matter. By eliminating complexity and ambiguity, you can increase the likelihood that your costs will actually be recovered.
Keeping track of all expenses/costs
Accurately tracking billable hours is hugely important to firms operating on more traditional hourly rates. But even for these firms—and especially for firms looking to implement flat-rate billing—expense tracking is critical as well.
When vendors combine thorough expense tracking with transactional billing, it allows firms to pass expenses to the client for specific, tangible actions. This process can even happen automatically if the software you use for billing integrates directly with the software generating the charges.
For example, many court filing service providers charge a flat fee for each online filing submitted. InfoTrack, which also integrates with popular practice management systems like Smokeball, Clio Manage and LEAP, can push this fee to the expense record in each matter and bundle it with the court’s own fees, so the client sees one simple, reasonable charge per filing.
While integrations used to be rare in legal tech, many practice management systems are developing integration ecosystems to expand their appeal and streamline business processes for customers.
Communicating costs to clients
While transparency is important when it comes to fees, there are times when it’s important to strike a reasonable balance between providing all available information and what will be clear to the client. Leaving granular charges on an invoice without a full explanation can sometimes cause more headaches than bundling them together under a single, clear action.
For example, state court filing systems often impose a small percentage-based fee for processing credit card payments. When eFiling providers front payment for court fees on behalf of a customer, they must pay this percentage fee themselves before requesting it back from the customer in a bill.
Vendors that automatically log expenses can employ different strategies to make fees easier for their customers to pass through to the end client. For example, InfoTrack bundles these expenses under one “eFiling” line item that passes to your invoice, minimizing your risk of having to quibble over these nuances with the client. Other vendors might opt to outline all fees, either with longer, contextual descriptions of each line item, or with none at all.
Many technology fees incurred in the course of legal work do not have to absorbed by your business. When considering whether or not to pass them through, ask:
- Does my payment of this technology fee protect the client from equal or greater costs associated with an alternative solution?
- Can I clearly explain this fee to the client without additional costs above the value of the technology use?
Instead of avoiding technology investments, your firm should strive to identify and implement any technology solutions that can produce a ‘Yes’ on both questions. With better software and smarter billing practices, your firm can improve its financial health while delivering a better experience for clients.
About the Author
Alex Braun is the marketing manager for InfoTrack, where he frequently develops legal technology webinars and other educational content for civil case practitioners.
InfoTrack eFiling software helps law firms file and serve civil case documents and access key litigation services directly from popular practice management systems. Using the power of integration, InfoTrack can make filing faster and more accurate, while automatically expensing all costs.