Like any other business, increasing profits and growing the company are top priorities for law firms. But before jumping into expanding your client base and increasing your billable hours, it is essential first to look at your practice’s workflows and processes and improve them to ensure that you are not losing revenue in traditionally overlooked areas.
Billing and time tracking are some of the least favorite tasks associated with running a law firm. However, it is a necessary evil for law firms to get paid for their work. The billing process impacts your firm’s financial and organizational health and drives the performance of multiple important Key Performance Indicators (KPIs). While attorneys’ primary focus needs to be on the quality of their legal counseling and representation services, it is also critical for the firm to collect accounts receivables promptly, or else its liquidity will be jeopardized.
Importance of Billing and Time Tracking for Law Firms
Inaccurate invoicing, late payments, and tedious timekeeping are common billing issues that can negatively impact your firm’s bottom line. In a highly competitive legal industry, one way to ensure success is by managing finances effectively. Time is money, so you need to account for it correctly. Billing and time tracking help law firms translate their working time into billable items. Doing the actual legal work and bringing in more business is important, but that will only matter if you translate it into revenue and profit.
Lawyers often rely on billing by the hour almost exclusively. If the billable hours are underestimated, you risk losing money for the time spent handling a client’s case. Consider this example: you spend three hours researching case law, two hours drafting a legal document, and another two hours in a client meeting. If you inaccurately record the time spent as five hours instead of seven, your firm loses out on two billable hours. Assuming an hourly rate of $250, this results in a loss of $500 just in billable client work. This is without accounting for the time it takes to deal with the fallout of unbilled work, such as potential client complaints. On the other hand, if you overestimate billable hours, your clients may question the accuracy, and the last thing you want is a bad reputation for your firm.
Why Should Law Firms Instill Good Billing and Time Tracking Culture
- The American Bar Association’s Model Rule 1.5 gives guidelines for fees in a lawyer-client relationship, which includes proper consideration for the time and labor required. Therefore, accurate timekeeping is not just about protecting your bottom line but also a matter of professional ethics. Having a detailed and systematic method for timekeeping is one way of abiding by the rules.
- Maintaining comprehensive records of time creates a reliable audit trail that can be used to solve discrepancies in the future. A granular approach inspires confidence in clients compared to block billing. This is because it makes it easier for clients to break down the costs and how it reflects the work performed.
- Good timekeeping, even for the non-billable hours, provides your firm with valuable insights to guide your strategy and business decisions. You can gain oversight on the profitability and efficiencies of specific practice areas.
Generally, tracking time accurately and properly reinforces ethical transparency on your billing, which benefits both the firm and clients.
Common Billing and Time Tracking Issues for Law Firms
Time tracking and billing are not necessarily complex tasks, but they often result in excessive administrative tasks for attorneys. Typically, lawyers deal with multiple clients and multi-task on various legal challenges in a single workday. While timekeeping is essential, they consider it an unnecessary disruption to their workflow, mainly because the time spent on timekeeping activities is not billable.
Poor timekeeping habits decrease revenue, and the longer it takes to complete your timesheets, the more billable leakage your firm experiences. It is, therefore, important for law firms to establish ways to streamline time and billing processes, which begins by identifying the challenges in the process.
Time Tracking Via Spreadsheets
Lawyers have long relied on spreadsheets to track their billable hours. However, this method has proved inefficient over time as it is tedious and introduces a significant amount of unnecessary billable time into your workday. The mundane nature of the tasks makes most attorneys avoid filling out their timesheets for as long as they can, often leading to inaccuracies due to memory distortion.
Based on recent surveys on average, attorneys spend 3.1 hours filling out timesheets each month. This number could be much higher because your firm has multiple clients, each with a unique spreadsheet format.
The solution is to eliminate spreadsheets and switch to contemporaneous time tracking. This lets you record your work activities as they happen, eliminating guesswork. In addition to embracing a tool with automatic time tracking, your firm can have a designated minder to audit timekeeping activities.
Reconstructive billing makes room for overbilling or underbilling, which can significantly erode client trust. When lawyers wait too long to enter their billable hours, they often turn to calendars, email, document management, and phone logs to jog their memory. While these may help, it is still like trying to assemble a puzzle with missing pieces.
Getting your law firm to do away with reconstructive billing to improve time entry will require a combination of culture and technology shifts. You will need to automate timekeeping to fight time slippage. A good time tracking system will automatically record tasks as they happen, convert appointments into time entries, record billable and non-billable time, and track time independent of location via desktop, laptop, or mobile devices.
Solve Time Tracking and Billing Issues with LawBillity
The best way to optimize time tracking and billing is using a timekeeping system such as LawBillity. LawBillity is a legal time tracking and billing software that allows you to track time spent on a matter and generate accurate invoices. It gives law firms insights into where they spend the most time with custom reporting and includes automated features that help increase billing accuracy.
Learn how to boost your firm’s productivity and profitability with LawBillity by signing up for a free 14-day trial.