Small Law Firm Billing: Solutions to Common Issues
As a small law firm, billing can be a challenging and time-consuming aspect of running your practice. Inaccurate invoicing, late payments, and tedious timekeeping are just a few of the common billing issues that can chip away at your firm's bottom line. However, with the right tools and strategies in place, small law firm billing can be made more efficient and effective, allowing you to focus on what matters most: serving your clients and growing your practice.
In this article, we'll explore common billing issues that small law firms face and offer solutions to help you overcome them.
Why Is Billing Important for Small Law Firms?
In the highly competitive legal industry, managing finances effectively is crucial to the success of a solo or small law firm.
Small law firm billing is the process of tracking the time and expenses incurred and collected on behalf of clients. Unlike big-name competitors who have money to spare, small law firms cannot afford to allow billing to slip through the cracks. Time is money, and it’s critical to account for it correctly.
Accurate and timely billing ensures your firm is receiving appropriate compensation for the legal services you provide. It's also one of the key ingredients to nurturing a positive client experience that promotes referrals to your firm.
What Are Common Billing Issues for Small Firms?
Small law firms rely heavily on effective billing to sustain and grow their business. However, many of these firms encounter several invoicing issues that can have a significant impact on their bottom line. In this section, we will explore five common challenges that often cause stress and frustration for small law firms when it comes to legal billing.
1. Inexperience With Billing
Many small law firms don't have the necessary billing experience or budget for a dedicated team. You're a lawyer, not an accountant, after all. This can lead to mistakes and inefficiencies, resulting in lost revenue.
2. Inefficient Time Tracking
Accurately tracking small law firm billable hours is critical to invoicing and revenue collection. However, time tracking can also be a source of frustration. It's natural for lawyers to prefer focusing their time and effort on their services, instead of tedious administrative tasks.
3. Inaccurate Invoicing
Inaccurate invoicing can lead to delayed payments or disputes with clients. Small law firms may not have sophisticated legal billing software or processes in place, resulting in mistakes on invoices. Inaccurate invoicing can damage client relationships and impact the firm's financial health.
4. Late Payments From Clients
Late payments can create cash flow issues that negatively impact the firm's ability to cover expenses and meet financial obligations. As a small law firm, collection of non-payments is a daunting task. Your firm may lack the resources to dedicate to collections, or if you have a small client base, fear of negative repercussions may hold you back.
5. Lack of Reporting
Without proper reporting, law firms may not have a clear understanding of their financial performance. This makes it challenging to make informed business decisions, plan for the future, and identify areas for improvement. Without reporting software, small firms may lack the resources or time to generate detailed reports on their billing and financial performance.
Solutions for Small Firm Legal Billing Issues
Billing issues can pose a serious threat to the success and longevity of small law firms. But with a few smart solutions in place, your firm can make billing less of a headache and more of a strength for your practice. Here’s how to do it.
Get Creative With Your Billing Structure From the Get-Go
First things first, you must have an attorney fee agreement in place. This document helps you set reasonable expectations, practice billing transparency, and establish trust with your new client. It's also an effective means of ensuring that both parties have a mutual understanding of the legal costs and fees involved.
Your agreement should include the following (at a minimum):
- Fee basis: a summary of your firm's base fees, including descriptions of specific costs associated with referrals and appeals
- Expenses: a description of your out-of-pocket expenses for which the client is responsible
- Calculation of attorney's fees: an explanation of how your fees will be collected and the factors that will be taken into account—such as expenses paid on behalf of your client and any fees owed to a referring attorney
For a free template, we invite you to download our sample attorney fee agreement.
Be Diligent About Your Fee Agreement
Now that you have a clear fee contract in place, it's important to remain diligent about your agreed upon terms.
One way to guarantee payment is by implementing an evergreen retainer provision within your agreement. With an evergreen retainer, your client pays a certain amount of their legal fees in advance and agrees to deposit the remaining amount of money on a regular (usually monthly) basis.
In this case, the client pays smaller sums more frequently. The retainer is calculated based on the original agreed-upon fee and is adjusted as the scope of work changes. This allows you as the attorney to work with the money in the trust account and not go over the budget before receiving another payment.
Of course, you always have the right to withdraw from a case if the client has not submitted payment. Don't be afraid to send them your motion and proposed order to withdraw. Sometimes this action alone is enough to motivate your client to pay.
Standardize Your Time Tracking
Without proper time-tracking processes in place, it can be difficult to accurately bill clients and receive the appropriate compensation for your work. Standardizing your time-tracking process is crucial to ensuring consistency and accuracy in your billing.
While there are a variety of ways for lawyers to track time, these two methods are the most common:
Use a billable hours chart. An attorney billable hours chart is easy for lawyers to use and for clients to understand. They’re easy to learn, straightforward, and don’t require the necessary budget for automated processes. Six-minute increments are the legal industry standard, which allows for enough flexibility while maintaining accuracy.
Automate the process with time-tracking software. The ease of use and accuracy of law firm time-tracking software is favored by legal professionals over manual processes. These tools can generate reports that provide insight into your firm's performance, enabling you to make informed decisions about how to best manage your time and resources to improve profitability.
Finally, it’s important to note that one of the most effective ways of guaranteeing accuracy in your timekeeping is to simply log billable hours as soon as possible. It’s far too easy for minutes to slip through the cracks or be forgotten altogether.
By clocking your time immediately, you’ll ensure you’re invoicing for what you deserve and make it easier to create work-in-progress (WIP) statements. This will help you understand how much work you're performing on a case and exactly how much it costs.
Stay on Top of Your Invoicing
Invoicing can be time-consuming, but it's crucial to stay on top of it to avoid billing issues down the line. Here are three effective legal invoicing tips to streamline your billing process:
- Make the invoice due upon receipt. When you send out a client invoice, make it clear that the owed amount is due as soon as the invoice is received. This way, you avoid creating a work deficit by giving them 30 days to delay or forget payment when you have already started on their case.
- Send your invoices at the beginning of every month. Many attorneys recommend this because it is typically when your clients have received their paycheck and bills are top of mind.
- Follow up in a timely manner. Make sure to follow up no later than one week after sending an invoice. This gives you the opportunity to touch base with your client while the topic of payment is still fresh.
For even more invoicing best practices, check out our list of Legal Billing Dos and Don’ts.
Small Law Firm Billing Software: The One-Stop Solution
At a small law firm, implementing the right legal billing software can make the difference between getting paid what you're owed and missing out on revenue. A reliable billing software will help you generate invoices, receive payments, and keep track of all your billing information in one centralized location.
LawPay, for example, offers law firms an end-to-end solution to streamlining their billing processes. Whether you’re making it easier for clients to pay by accepting alternative payment methods, offering lawyer retainers for peace of mind and protection for both parties, or setting up scheduled payments to not skip a beat, LawPay has your every billing need covered and compliant.
Our newest offering, LawPay Pro, also brings timekeeping benefits into the mix. With strategic tools and automated processes, you’ll alleviate the struggles of manual time tracking and gain more time to focus on what matters most: serving your clients.
Improve Your Small Law Firm’s Billing Practices
Small firm legal billing can be a challenging task, but it doesn't have to be a source of stress for your practice. With the solutions outlined in this article, you can improve your law firm's billing processes and ultimately increase your profitability. Additionally, adopting a tailored small law firm billing software can provide transformative benefits with a reduced workload and streamlined invoicing.
Given the significance of billing in the success of a law practice, it is essential to get it right. Learn how LawPay can help your firm with its billing needs and schedule a demo today!