Understanding the Challenges of Billable Hours and Complicated Fee Arrangements

Capturing and managing billable time provides the groundwork for monitoring, measuring, and managing performance. It also offers the ability to forecast and budget future business operations.

Yet, for this critical task, many attorneys are willing to suffer through inconsistent and inefficient manual processes. 

At the end of each month, timekeepers are rebuilding billable hours from sticky notes, correspondences, phone call logs, calendar entries and any other information that they can find. This prehistoric method for tracking billable time is time-consuming and inefficient, has high overhead costs, and wastes valuable billable hours, which ultimately decreases the revenue potential of your law firm.

Unfortunately, management might not realize these daily inefficiencies that challenge end users trying to complete even the simplest billing and accounting tasks. They might not realize that, by using outdated software, billing cycles and accounting processes lack the modern business intelligence and smart tools to streamline and improve workflow efficiency.  

Every second of every minute counts as revenue when it is time to invoice clients and get paid.  

A (Short) History of Billing Practices for Law Firms

The billable hour, undeniably the standard billing practice for legal services, began to achieve widespread use in the 1970s. There were several other prevalent billing standards before that.  

In the 19th century, attorneys faced capped legal fees categorized by service and imposed by state laws. Contingency fee billing arrangements, deemed ethical by the American Bar Association (ABA) in the early 1900s, soon became a viable option for law firm billing. 

In the 1930s, State Bar Associations began to impose minimum fees for professional services. Attorneys who charged less than these minimum fees would face disciplinary and/or monetary punishments. As litigation became more complex, thanks to expanded federal and state laws in the late 1930s, the prescribed flat-fee billing often left attorneys with less money for the same amount of work. When the Supreme Court outlawed capped billing and minimum-priced billing in 1975, the path was clear for the widespread adoption of hourly billing.

Fee Arrangements

While hourly fee billing is still the main structure in law firms, the past two decades have demonstrated an increasing number of clients requesting flexible, alternative fee arrangements. Standard operating procedures for onboarding clients now include various fee arrangement offerings to meet client demands. 

These fee arrangements include methods such as:

• Capped monthly fees 
• Recurring flat fee 
• Contingency fee
• Evergreen retainer 
• Flat-fee
• Task-based fees 
• Value-based billing

Diverse and flexible alternative fee arrangements lend themselves better to practice area billing standards or litigation billing guidelines. 

Litigation, corporate law, family law, and insurance defense practice areas tend to offer hourly and retainer fee arrangements. Estate planning, bankruptcy, and criminal defense rely on flat-fee fee arrangements and entail fees paid upfront or on completion of work—depending on the practice area.

Regardless of the law firm practice areas or flexible alternative fee arrangements offered, clients are mandating more complicated fee structures and flexible options. Without tools in place that automatically assign fee structures or fee arrangements on a client or case basis, errors will be made during the billing cycle and appear on invoices. 

Errors on invoices lead to disgruntled clients and unhappy timekeepers. In addition, staff must waste overhead hours and billable time to immediately research, resolve, and respond to fee billing issues.  Time and hours that could have been spent on projects or billable client work are now lost revenue.  

Without a time, billing, and accounting software that generates accurate and error-free invoices, payments are delayed and clients may be lost. 

Now more than ever, to stay on the competitive edge, it is imperative to implement an innovative solution designed and engineered with business intelligence. With fresh, modern technology, your law firm will efficiently manage complicated fee arrangements and meet the legal industry billing standards and client demands.

Common-Law Firm Billing and Accounting Challenges: Which Questions Apply to the Management of Your Business Operations?

As you begin to identify the technology requirements of your law firm, below are some questions to jump-start the evaluation process of your legal practice management solution.

These questions will assist the management team and technology committee in analyzing processes and procedures to identify the weak links in your accounting procedures. When identified, your law firm must evaluate and implement a fully-integrated time, billing, and accounting solution that streamlines financial management and business operations.

• How many billing questions—via telephone and email—are received post-invoicing each month?
• How much time are billing staff spending on workarounds to match client fee arrangements?
• How much billable time and overhead hours are wasted to review, research, and resolve complaints? 
• How much revenue is written off or credits applied to future services due to errors on invoices?
• How are these inaccuracies affecting the business operations and, ultimately, the bottom line?
• How long does it take for payments to arrive after invoices are sent?
• Are there links for easy, immediate electronic payment of invoices?

If the answer to these questions is not satisfactory, then there are major inefficiencies with your current software. Internal procedures must be streamlined for efficiency and your law firm must migrate to a cloud-based platform, implementing a fully-integrated legal practice management solution to improve profits. 

Discover CORE Legal — Cloud-Based Technology and Mobile App

Our CORE Legal Cloud-based technology with a fully-functional mobile app provides anytime, anywhere access. It is an essential business tool for the innovative modern law firm. Law firms that are considered industry leaders have the vision and innovation to virtualize their entire legal practice workflows and business operations to a cloud-based platform.   

Law firms that rely on manually processing financial data are losing profits, wasting overhead hours, and are at a huge risk of human error, which could result in malpractice. These archaic ways of managing data by hosting software on outdated, on-premise servers, or processing time, billing, and accounting financials in more than one software, are hindering revenue growth.  

Manual and inefficient processes also result in longer turn-around-times for casework production, which leads to diminished professional legal services and loss of clients. By moving to the cloud and implementing an intuitive legal practice management solution to efficiently manage business operations and provide the business intelligence to measure performance metrics, your law firm will definitely scale growth.