Legal Billing 101

AKA Learn it or lose money

If you are an attorney who began your career somewhere other than a private practice, you may, by now, have realized that billing in private practice is a lot harder than it seems. If you developed bad billing habits while working for someone else, you may not realize the money you are hemorrhaging now that you have your own firm. Here are the top five (5) lessons for you to learn to have a great start to the new year.

1. Late billing equals less money.

Procrastination in entering billable hours, rather then contemporaneous entering, is the number one reason for lost revenue in attorney billing. Think about how hard it is for you to remember what you had for lunch last Tuesday; do you actually think you are going to remember the nuance of how you spent your time. Whatever reconstruction of your day that you can devise will undoubtedly be less than what you would have recorded each event as it occurs. This deficit is because we recognize that large, billed hours must necessarily be justified to the client and if we don’t remember we err on the side of less. Contingent fee billers, with the potential to recover attorneys’ fees from the adversary, need to keep this lesson in mind as well, because their fees will be reviewed by a court, not just a client.

2. Retainer money isn’t yours until you earn it.

So many attorneys use a flat fee methodology for retainers and think that negates the need to account for billable hours. Unfortunately, a careful review of the ethical rules demonstrates that even with flat fee billing, if a client fires you, you may only retain that portion of the retainer that you earned. How much did you earn? Well, you guessed it, how much you earned is dependent on how many hours you billed, and at what rate. That means a flat fee retainer agreement still must have a billable hour rate, and you still need to bill from and justify the amount, even if by the nature of the agreement you are likely to keep the entirety of the flat fee. As attorneys we must plan for the worst, and the worst would be to have a client terminate your service and to have no hours recorded to justify the amount of the retainer you took…that is a fast track to the grievance committee, somewhere no one wants to be.

3. Advertising must be paid for with commensurate resultant billing, or it is not worth it.

Speaking with attorney colleagues about the amount of money they spend on advertising has always been cringe worth to me. I can’t tell you how many firms will spend $15,000 or more a month, and then I ask them how many clients they signed as a result and they will tell me something like one for $2,500 or three for $8000. If your advertising isn’t at least paying for itself with increased revenue, then you are spending too much. Let’s not forget the one thing we learned from the makeup enterprise of one of our favorite reality TV moguls – the best advertising is free, and a fortune can be made capitalizing in the big four social media outlets without paying a dime. Not to mention, encourage clients who are happy to write reviews or offer referrals. Think about it, when you go in search of a business, what do you trust more, their ad, or a recommendation from someone you know. 

4. Your billable rate should not be so high as to decimate a retainer in the first week. 

Knowing the popularity of the adage, “Cash is king,” there will undoubtedly be those who dispute this advice, but those are people who clearly have never had to litigate a client fee dispute. When a court or arbitrator is looking at your fees, you suddenly have a new appreciation for the term reasonable. Unless you are in a major metro area where office overhead his high enough to justify $400 plus dollars an hour, you better do some market research before setting your fee. 

Standard “shady” lawyer-trick is to require a minimal retainer like $500 up front, but then bill at $450 dollars an hour, running up invoices that the client is left having to pay if they want to move their case forward. Fee disputes and arbitration cases abound from this practice, and far more attorneys than we would want to admit to, find themselves with a court ordered reduction of fees. 

Billing at an appropriate rate for your region, and your overhead, in such a fashion that you feel confident that you could justify your rate to the court, will always be best practice. 

5. If you don’t have a record of it, it didn’t happen.

Lesson 4 provides an excellent segue into Lesson 5, you never know when or to whom you will have to justify your billing, IOLTA account reconciliation, or operating account usage. It is absolutely imperative that you keep excellent records. There are lots of options with regard to billing software and record keeping, but often paid-ware programs are so complex and offer so many more features than you need, that firms are paying for dead weight that they will never use. Make sure to survey all the options available to you. Some banks, like M&T, even offer freeware to their attorney clients, that was designed specifically for attorney users. Bottomline, know your options before you pay, but a product like M&T’s NOTA is a great place to start because it allows you to record all of your IOLTA account deposits and withdrawals with memos memorializing the client matter it was for, and the nature of the transactions.

In sum, billing isn’t easy, but these tips will make it much easier and successful for your law firm in the new year.