How Lawyers Get Paid
Getting paid is one of the toughest business challenges lawyers face. You probably didn’t sit in your law school classes dreaming of the day you would have to chase down a payment from an errant client. Nevertheless, what choice do you have when you are faced with sending (another) invoice reminder or leaving money on the table?
Like with any business, your firm's success depends on profitability. Failure to collect payment from clients can be frustrating and leave you feeling defeated. However, it is essential to consider what factors impact a client's ability and willingness to pay their legal bills. While it may be true that some do not have sufficient funds, other times, they may require more flexibility or a more convenient way to render payment. Law firms that fail to assimilate their payment options into modern consumer demands, including credit, debit, eCheck, and even payment plan options, ultimately risk negatively impacting their firm's bottom line.
After you've done your job, you expect to get paid for it. And your clients expect you to provide modern payment methods for their convenience. By offering clients flexibility in payments, your firm's lawyers can spend less time trying to collect unpaid legal fees. The result is a stabilized cash flow, happier clients, and more time to focus on work that matters to you.
Law Firm Revenue During the Pandemic
Law firms, like most businesses, were negatively impacted by the pandemic’s effects. In March of 2020, at the height of the pandemic, the world came to a standstill, and consumer spending dropped to a near halt. Law firm revenues declined rapidly in early 2020, but increased over time in line with the economy’s recovery overall.
We observed a significant dip in payments volume in the spring of 2020, at the onset of the pandemic. However, law firm payments revenue gradually increased throughout 2021, with a full recovery towards the end of the year. In 2022, growth exceeded pre-pandemic heights and showed no slowing. In other words, all signs point to a full recovery. That’s great news for legal professionals!
Collection Rates for Legal Professionals Using Online Payments
In the age of Venmo, PayPal, and Square, your clients expect the convenience of paying for goods and services online. Writing checks is outdated, and clients prefer to avoid the hassle of coming into an office to pay in person. Providing your firm’s clients the ability to pay online, whether by credit card or ACH, means they have the flexibility to pay legal bills on their terms.
Our data shows the amounts collected by customers who used online payments in 2021 compared to those collected by customers who don’t yet collect online payments. Notably, the collection rates for customers who accepted online payments were nearly 10% higher than those who didn’t.
Streamlined billing practices are one of the cornerstones of a successful law firm. Notably, ensuring that your firm has effective billing processes is easier said than done. More likely than not, you know how important it is and have taken steps to reduce inefficiencies in your law firm’s billing processes, but you know that you could - and should - be doing more.
One of the best ways to streamline a billing process is to provide clients multiple ways to pay invoices. When you provide your clients with flexibility, including the ability to pay by credit card and ACH, your firm will get paid much more quickly.
How much faster? According to 2021 data, customers who accepted online payments received them 32% faster than those who relied on traditional methods.
Billable Rates by Practice Area and Geographic Region
Another way to increase profitability is by charging more for your services. Frequently, lawyers don’t always determine the appropriate value for their services or fail to adjust rates to keep up with changing economic times. Getting stuck in a billable rate rut is all too common and happens even to the best of us, partly because it’s difficult to determine what other lawyers in your area are charging for similar services.
You might consider looking at data on employment via the Bureau of Labor Statistics, which shares the average salaries for lawyers across the country. The mean annual wage for lawyers in the U.S. was $153,630 as of May 2021. Some state bar associations also publish industry trends on salary, breaking those down further by law firm type and practice areas.
How does your firm’s rate compare to the rate charged by other firms in your area? If it’s on the low end, then maybe it’s time to revisit your law firm’s billable rates and, in turn, increase your law firm’s profitability!
Your law firm needs to focus on its bottom line to succeed in a competitive market, especially as the end of the year nears. Fortunately, there are technologies available that make it possible to streamline your firm’s billing and payment processes and increase profits.
Content originally written by Nicole Black, Legal Technology Evangelist for MyCase