7 Steps to Fixing Your Legal Billing Problem
The following post is the sixth in a six-part series on legal billing excerpted from our white paper, Houston, We Have a Billing Problem.
Instead of immediately trying to get your firm to Level Five proficiency with billing, concentrate on advancing one level at a time. Establishing good practices takes time, and the following steps will propel you up the ladder as you continue to improve. The important thing is not to be intimidated or discouraged: keep at it.
Step One: Passively Collect Your Time
Let’s face it. Tracking time and billing is a royal pain. The only way we’ve found to embrace this habit is to use a system that allows you to passively bill as you do your work. Time capture needs to be presented to you as you upload documents, work with emails, complete to-do’s, attend events on your calendar, or go about your other daily activities.
The idea of filling out a time sheet at the end of the day, electronically or not, doesn’t cut it: you and your staff will simply miss oodles of time. The work needs to be tracked while you do it. Systems like Rocket Matter can help you collect billable time as you work without having to revisit your day. Other systems like Chrometa are busy in the background and track the computer time you spend working on everything.
If you are primarily a flat fee or contingency firm, not tracking time means not running your business efficiently. Only through proper time capture can you determine the true value of your cases and if you’re getting a decent return on your investment.
Step Two: Find a Tool to Make Billing Easy
It’s one thing to collect for your time, it’s an entirely different task altogether to get bills out the door. You need to find a frictionless way to generate invoices for your customers that is accurate, clean, informative, attractive, and timely. As we pointed out before, delaying your invoicing creates a significant negative impact on your firm.
Here’s a quick self-evaluation: if you’re employing a system where generating a single invoice takes more than a few seconds, or you cannot generate bills firm-wide within minutes, you are using an inefficient system. Software exists, including Rocket Matter that provides this kind of streamlined functionality.
Step Three: Create a Billing Checklist
They seem trivially simple, but checklists keep you from making mistakes the same way they help pilots and mechanics prevent planes from falling out of the sky. Pioneered as a system in aviation, the humble checklist is one of your most powerful allies in taking command of your work processes, including billing.
Once you nail down your invoice generation process, write down the steps. This list becomes your checklist. Run through your new checklist with someone who hasn’t used the system before and see if he or she can follow along. If you missed a critical step you can remove it, or if you added an obvious step you can trim the list down. This process is especially important for recording payments, since most firms need to pay careful attention to how they manage their trust and escrow accounts.
When you create a checklist, you create a repeatable process that’s learnable and efficient, and prevents error. You can easily train new staff as you bring in additional people, increasing efficiency and minimizing painful learning processes. You also defang workplace administrative bullies, who use their obfuscated knowledge of processes for control and politics.
Step Four: Pick the Same Day Every Month to do Your Invoicing
Billing on a regular monthly basis ensures that you bill your clients in close proximity to the work performed. Thus, for the reasons discussed above, you minimize the second biggest risk of the entire process: not getting paid for your work (the first biggest risk, not capturing time, is resolved with the passive time capture system discussed in step one).
In addition, blocking off dedicated calendar space on the first or fifteenth of every month to go through your invoicing is an efficient time-management technique. The team knows it’s coming and can prepare for it, making sure nothing interferes, and the bills are over and done with. Establishing a rhythm for your clients is critical as well: business clients who receive regular invoices are conditioned to pay them automatically. We folks in the business world like regularity and certainty. We hate surprises.
Step Five: Create a Billing Dashboard
Remember the question about the mileage on your car and the temperature at the beginning of this white paper? Now you’re at the point where you can spot fundamentals for your firm billing. If the staff in your firm is passively collecting billable time, regularly generating invoices, and recording payments, you have almost everything you need to surface critical billing information in an easily visible, central location. For example, with the right system, you can now easily see:
- How much work you’ve done that hasn’t been invoiced.
- How much money you’ve billed that hasn’t been collected.
- How much money is available for withdrawal from your trust account.
Dashboards are key. They’re easy to understand – there is no interpretation needed, the data they present are simple and straightforward so you know exactly what you’re dealing with. They also tell you whether the data is suggesting good or bad law firm performance.
Step Six: Run Billing Reports to Formulate Your Strategy
Once you see that billing dashboard, you’re going to want to dive deeper into your numbers. An ongoing study of your numbers is going to tell you what you’re doing well and what you need to improve. A billing system with proper reports help you discover who your top performers are, who your core performers are, and frankly, who needs to go elsewhere, all with data-backed certainty. You can also learn which matters are more profitable than others, which clients pay more quickly than others, and other critical items related to your billing.
Data allows you to make decisions based on evidence. It can drive strategy: for example, you might hypothesize that adding an associate to focus on bankruptcy might augment your consumer-facing family law practice. Whether or not this move pays off, can be determined with your time and billing records.
It’s worth mentioning that if you are a flat fee or contingency billing firm, it’s worth the discipline to passively capture time so that you can determine the value of your cases. With time data, you can see your ROI (return on investment) for matters of different types. More importantly, the historic value of your cases can now inform pricing decisions for alternative fee arrangements.
Without billing reports, your pricing is a dart thrown while wearing a blindfold standing in a rocking boat.
Step Seven: Predict your Future Income with Your Billing Data
Nice work! By now you’re a Level Four firm. The problem is, you know where you’ve been, but you don’t know where you’re going. Most law firms we work with have nothing in the way of yearly revenue goals and a corresponding plan of initiatives to achieve those numbers. In fact, the idea of revenue projection is completely alien and intimidating to many of the firms we speak with.
As we discuss in our free e-book, Ridiculously Remarkable Legal Billing, this is not a good way to run a business.
For sure, there are elements of a lawyer’s cash forecast that are very difficult to accurately gauge. The most frequently cited example: Who knows when that new business will come in the door?
However, there are plenty of elements of your cash flow that can be, for the most part, largely predictable. And all those predictions, in turn, flow from the most important, controllable piece: getting your bill out on time.
Looking at your current client base and workflow and assigning reasonable estimates to when you think you’ll perform pending billable work (by mining things like your current task list, calendar, litigation scheduling orders, corporate filing deadlines, and so forth), you can get a decent sense, without much work, of how much you’ll be billing and at what time.
Getting those bills out on time will start the clock for payment, and when those bills go out, is something that ought be highly predictable.
Before you start projecting your cash flow, you need to know the types of cases you work with and what they’re worth. You’ll need to understand historically what your caseload trend is like. You’ll have to decide if you’re going to pursue different opportunities, more opportunities, or a different distribution of case-load to achieve your goals. You can only do these things if you’re a Level Four firm.
You’re now a Level Five firm. You’re among the elite law firms in the world when it comes to business practices.
If all of this financial discussion has you feeling intimidated, don’t be. You actually took the first step in a journey to transform your law practice. Whether you’re at Level One or Level Four, there’s work to do and room to grow. Take it step by step.
POSTS IN THE SERIES:
How Bad is Your Legal Billing Problem?
Legal Billing: The Five Levels of Success
Your Legal Billing Problem Needs to be Solved Yesterday
Legal Billing: Which Law Firm Wins the Business?
How Legal Billing Practices Can Differentiate Your Firm
7 Steps to Fixing Your Legal Billing Problem