Even as alternative fees continue to creep into the practice of law, attorneys and law firms in the main continue to bill their clients on an hourly basis. Even in value billing options, time spent continues to be a major factor in developing alternative fees, such that smart lawyers building out more client-friendly payment terms keep track of their time, and factor it into the value proposition, including by making adjustments to value over time. Since everything an attorney does directly or indirectly relates back to the time that the lawyer spends, it will remain essential for lawyers to effectively record and bill for time.
Of course, most attorneys hate being chained to time sheets. That’s only natural. People want their work to be tied to a quality metric, not a clock. Lawyers feel the same way, even if the profession has traditionally bucked against that view of a practitioner’s workflow. The key becomes making time capture and billing and collecting more seamless so that those processes don’t so often intrude on the attorney’s workday. Fortunately, it’s a great time to adopt new business management measures, since a number of technological and strategic advantages are available to modern lawyers.
You might be surprised to learn just how many lawyers, young ones included, keep track of time via antiquated paper and pen or electronic document-based models. The problem with systems like these is two-fold: It disrupts workflow, especially paper-based timesheets, which force you to move off of your device, where you do most of your work, into another medium. Even if you’re using an electronic document to record your time, you’re likely shifting perspective to make notes. Secondly, this forces a redundant task: you’re not sending paper sheets or raw Word documents to your client for invoicing. So, somebody (you or a staff member) has to then convert your time to another medium or program, to create a bill. This may be the biggest time-waster in legal practice.
The solution to this mess is only tracking time once. In the first place, you should be looking at using a holistic system to run your law firm, like a case management program. Every case management system on the market includes a time tracking tool. So, get a case management system and access it via all your devices, to keep track of your time as you work. Tag the time spent on specific clients and generate an invoice with a single click. If you’re not interested in a case management system, then select a time capture app that allows you to export time logs to create invoices more quickly. If your particular speed bump happens to be the “manual” part of manual time entry, programs will track your device usage to create a time log. Write an email to a client, draft a document, run a search, and it’s all automatically captured. Since the integration of software is now heavily in vogue, many of these automated time tracking tools will utilize your contacts information to relate certain activities to certain clients, and you’ll also be able to export time tracking data directly to your billing system.
The application of an automated time tracking program is also helpful for another reason: it can show you when you’re not working. It’s helpful to know, for example, whether you spent two hours on Tuesday afternoon working on that brief or playing Fortnite. It’s useful to know when you’re not billing, just what you were doing instead. If you find that you’re distracted every Tuesday afternoon at 2:00 pm, maybe that’s when you work out or take a nap to recharge. Or, maybe you were having lunch with a colleague, trying to develop a new referral source—an automatic time tracker would log that time as “away,” and you could then label it “marketing.” Studies suggest that solo and small firm lawyers may not even collect on 25% of the time they spend working. A big reason for that is that lawyers don’t make data-centric decisions, even if many other professions have already moved to that model. In the realm of time capture, it is fair to say that lawyers don’t often scrutinize the time they spend. They are generally very reactive about putting out daily fires and billing as much as they can around those. But, if attorneys took time to delve deeper into how they spend their time, they’d make better use of it, bill more, and collect more.
Time capture and billing are only two points of a law firm’s financial triangle; and, the third is collections. Collectible bills, however, come in several varieties. One of the reasons why law firms generate reports on ‘aged’ accounts receivable (usually for 30 days, 60 days, and 90 days late), is to get a better sense of what they can collect. The longer an account stays open, the less likely it is to actually be collected.
There are, however, two useful ways to combat the accounts receivable void. One is to collect more of them. Sounds simple, right? But it’s almost impossible without an effective process in place. So, you should develop an internal system for collections. Set down follow-up methods and timing. Decide when a bill will move into the collections phase. Figure out how and when you will charge late fees. Draw up your policies, and make sure everyone in the office with responsibility for payment collections follows them. Otherwise, those accounts receivable will continue to stagnate, and you won’t ever see that money.
The other solution is even more obvious: get paid more upfront, more often. Law firms that bill by the hour get paid after they do the work, placing a massive collections risk upon themselves. Law firms that use alternative or value billing can get paid in advance. Many law firms dislike trust account management (usually a necessary precursor for getting paid in advance), so they prefer hourly billing and later payment. But, if you want to make more money, you’ll tend to your trust accounting responsibilities, and get paid first. Of course, a number of methods can be used to get paid before you work, including traditional retainers, evergreen retainers, and flat fees, among others. So, pick the mix that works for you, and start getting paid in advance.
Certainly, it’s easier to get paid in advance when you have a simple method for managing the payment process. That is where online payments made via credit or debit card can really help law firms to boost their bottom lines. Studies show that law firms accepting online payments get paid more (often) and get paid faster. You also shift the collection risk by taking payments in this fashion. The client now pays by credit card, and the payment plan is ostensibly set up with the credit card provider directly, and not with you.
Many law firm clients also do not have the funds for paying a lawyer’s retainer in the bank at any given time. If you’re asking your potential clients for a $5,000 retainer, for example, and you need a blank check, your potential clients may have to scramble for those funds, or seek another attorney if an alternative payment method is not presented. If the issue is important enough for your client to get resolved, and they believe you are the right solution provider, don’t give them an easy excuse to move on and pay your competitor the same amount of money, just in a different way. While many law firms still balk at the prospect of paying processing fees for these types of payments, the fees are minimal given the much larger amount of income you are potentially leaving on the table by avoiding these options.
The Value of Delegation
The way you make money as a lawyer is by practicing at the top of your law license; that is, you’re performing, as often as possible, the high-level substantive work that attorneys get paid top dollar to do. For instance, you’re creating a litigation strategy, not scheduling an initial client consultation. Or you’re drafting an answer to a complaint, not creating the first draft of a simple will.
If you have staff and/or associates, use them to perform lower-leverage work, and save the higher-leverage work for yourself. Think of yourself as the elite closer in a Major League Baseball bullpen: you have set-up players. So, sit down and aggregate all of your tasks into three categories: 1) substantive work that only you can/should do; 2) substantive work that others can do; 3) administrative tasks. Then, try only to touch category 1. You’ll feel more accomplished, you’ll make more money and you’ll be happier. You hired your staff because they’re smart and hardworking: let them create and manage workflows, which you can approve and oversee. And, before you know it, your law firm will be functioning like a well-oiled machine.
About the Author
Jared D. Correia is the founder and CEO of Red Cave Law Firm Consulting, which offers subscription-based law firm business management consulting and technology services for solo and small law firms. Follow him on Twitter @RedCaveLegal.