Efficient legal billing is crucial for the financial health of any law firm. It ensures timely compensation for your services and reinforces the trust clients place in your practice. That’s why we’ve created this guide on how to do billing for lawyers.
We’ll cover the essential law firm billing guidelines and provide you with actionable insights to refine your billing process. You'll discover how to track time, create invoices, and follow up on payments with precision.
Plus, we'll introduce you to the best billing software for lawyers - InvoiceSherpa. Our solution revolutionizes legal invoicing by automating tedious tasks, helping you get paid quicker, and enhancing client relationships.
Find out firsthand why legal professionals around the world rely on our accounts receivable automation software today!
Before getting into how to do billing for lawyers, let’s talk about the significance of law firm billing guidelines in the first place. So many legal professionals focus on attracting clients, making a name for themselves, and winning cases. But getting paid is of the utmost importance!
Law firm billing guidelines serve as a blueprint for transparency, setting clear expectations for billing practices and fees. By following these standards, law firms can avoid disputes, maintain ethical standards, and uphold their reputation.
Billing guidelines dictate how time and expenses should be recorded, ensuring every invoice reflects the true value of the work performed.
They also lay out payment terms, helping to secure a steady cash flow and reduce the likelihood of late payments. After all, this is how cash flow problems usually start.
Moreover, compliance with these guidelines safeguards against legal repercussions and ethical breaches that could jeopardize a firm's standing.
While you could certainly consider accounts receivable outsourcing, keeping this process internal is paramount for maintaining control and visibility into your finances.
Plus, you can reap the accounts receivable automation benefits to get paid faster, save time, and strengthen key relationships with clients. We’ll talk about this shortly. First, let’s talk about what the legal billing process looks like in general.
The legal billing process is a meticulous journey that begins with the initial consultation between an attorney and a potential client. During this first encounter, the lawyer assesses the case, and both parties discuss the scope of representation.
It's here that the foundation of the billing agreement is laid out, including the billing method - whether it will be hourly, fixed, or contingent upon the case's outcome.
Then, a formal engagement letter or retainer agreement is signed, detailing the services to be provided, the billing rates, and the payment expectations. This document serves as a contract that governs the financial relationship between the client and the law firm.
As the case progresses, attorneys and paralegals track their time with precision, often using specialized legal billing software. This software assists in capturing every billable minute spent on a case, along with any associated expenses that need to be reimbursed by the client, such as filing fees, research services, or travel costs.
Invoicing is typically done on a monthly basis to provide regular updates to the client about the ongoing costs. The invoice will list all services performed, expenses incurred, and the total amount due, often accompanied by detailed descriptions to justify the charges.
Upon receipt of the invoice, the client is expected to review and remit payment within the agreed-upon timeframe. If payment is delayed, the law firm may send out reminders or statements.
Ready to learn how to do billing for lawyers? We’ll guide you through the basics of legal billing for dummies below, leaving you feeling confident in handling everything from creating your billing policy to sending out invoices, following up, and more.
You need a clear billing policy before you can actually bill a client. This policy is a comprehensive document that outlines how you charge for different types of work, your rates, and the terms of payment. It should reflect the value you provide to your clients while also being competitive within your market.
When setting your rates, consider factors such as your experience, specialty, and the going market rate in your area. Rates can be hourly, fixed, or contingent:
Whichever approach you take, you’ll need to make sure it’s clearly communicated when initiating any new relationship. You’ll then need to set up a legal billing system.
Your billing system should be efficient, accurate, and transparent. A good legal billing system includes time tracking software that integrates with your case management system, accounting software, and possibly even your client communication platforms.
Choose a system that allows you to easily enter time and expenses, generate invoices, track payments, and run reports. Many systems also offer features like mobile apps, which can be especially handy for entering time and expenses on the go.
Accurate time and expense tracking is critical to getting paid for all the work you do. Every minute spent on a case should be recorded, as well as any out-of-pocket expenses that you'll need to bill the client for later.
Legal billing descriptions and codes are used to categorize the work done on a case. These codes, often based on the Uniform Task-Based Management System (UTBMS), help standardize billing across the legal industry and can also help clients understand exactly what they're being billed for.
Common codes include Meeting, Research, Draft, and Revisions. Taking this a step further, though, you should be diligent and specific in noting any codes as you track time/expenses. Rather than just jotting down “met with client”, discuss where you met with the client, what you discussed, and action items.
Invoices should be detailed, clear, and professional. They should include a breakdown of the time spent on different tasks, using the billing codes mentioned above, along with a description of each task. Expenses should be itemized separately.
Invoices should be sent out regularly, usually monthly, to keep the client informed and to avoid surprises. They should also include clear terms of payment, such as the due date and invoice late fee wording.
We’ll talk about this later on, but you shouldn’t send out invoices manually. Ideally, you’d leverage the benefits of automated invoice processing to handle all this on your behalf so you can focus on bringing in more money by performing services.
Despite your best efforts, sometimes invoices go unpaid. It's important to have a process in place for following up on these invoices.
Start with a friendly overdue payment reminder email a few days after the invoice is due. If there's no response, follow up with a more formal letter. Offer to discuss the bill in case there are any disputes or misunderstandings about the charges.
As time passes, increase the frequency and formality of your communications. After several attempts, if the invoice remains unpaid, you may need to discuss payment plans or alternative solutions with the client to recover the owed amount.
Now, what can a lawyer do to get a client to pay an invoice if a strong demand letter for payment fails to stir the client into action?
If all else fails, you may need to consider taking legal action to collect unpaid fees. This is a last resort and should be approached with caution, as it can affect your relationship with the client and your firm's reputation.
Before proceeding, review the client's history, the amount owed, and the likelihood of recovery. If you decide to move forward, ensure that you comply with all legal and ethical obligations.
Remember that legal action can be costly and time-consuming. It's often more effective to work out a settlement with the client outside of court. This is something we talk about in our guide covering when an account becomes uncollectible and must be written off.
Still, if you want to learn how to send an invoice to collections, we have tips on doing so here at InvoiceSherpa. But, that’s a conversation for another day. Let’s look at a few ways you can enhance the law firm billing process below.
While you should now have a solid grasp of how to do billing for lawyers, we want to offer a few specific small business accounting tips for law firms below:
It's crucial to establish a transparent billing policy from the outset that delineates how charges are calculated and what clients can expect in terms of fees.
This policy should be communicated during the initial consultation and reiterated through clear, understandable invoicing. Regular communication about billing and case progress reassures clients and can prevent disputes over fees.
When clients are well-informed, they are more likely to pay promptly and feel satisfied with the service provided. This will go a long way in avoiding issues associated with unbilled receivables.
Attorneys should track time contemporaneously to ensure accurate billing. This means recording time spent on a task as soon as it's completed, rather than trying to reconstruct activities at the end of the day or week.
This practice reduces the likelihood of forgetting billable hours and provides a more accurate account of work done. Modern time-tracking software can simplify this process, allowing lawyers to capture time with a click or tap, whether they're in the office, in court, or working remotely.
Regular billing cycles keep the cash flowing and reduce the burden of large, infrequent bills that can surprise clients and delay payment.
Monthly invoicing is standard practice, as it helps clients budget for legal expenses and allows for quicker identification and resolution of any billing issues.
Frequent billing also helps law firms manage their own finances by providing a steady income stream and reducing the gap between performing work and receiving payment.
This is perhaps the most important piece of advice we have to offer pertaining to law firm billing. Automation is transforming legal billing by streamlining the invoicing process and reducing the administrative burden on lawyers.
By utilizing billing software, law firms can automate routine tasks such as generating invoices, following up on unpaid bills, and even sending out payment reminders.
Automation ensures consistency in billing practices and can free up attorneys to focus on billable work rather than administrative tasks. Additionally, some platforms offer analytics to help identify trends and areas for improvement in the billing process.
We’ll show you what makes our law firm billing software the #1 choice among professionals shortly, but first, a quick word on managing your finances effectively.
We know you cam here specifically to learn how to do billing for lawyers, but this is just one piece of the financial puzzle. From learning how to forecast accounts receivable to re-investing cash smartly, there is so much that goes into managing legal finances.
This begins with a well-structured budget that projects both expenses and revenues, allowing for informed decisions that align with the firm's financial goals.
A key component of managing a law firm's finances is maintaining a clear separation between client funds and the firm's operating funds. Client retainers, for example, should be kept in trust accounts and managed meticulously to comply with legal and ethical standards.
Cash flow management is another vital aspect. But, why is cash flow management important? Simply put, it’s the lifeblood of your firm.
Law firms must ensure they have sufficient cash on hand to cover short-term expenses, including payroll, rent, and utilities. This requires careful monitoring of accounts receivable and prompt follow-up on unpaid invoices.
By regularly reviewing financial reports, firms can identify trends, adapt to changes in cash flow, and make strategic decisions to bolster financial health.
Lastly, law firms should not underestimate the importance of financial expertise. Whether through in-house staff or external consultants, access to knowledgeable financial advisors can help navigate complex tax issues, compliance requirements, and financial planning.
These professionals can offer advice on everything from tax-efficient structures to investment strategies that support the firm's long-term growth.
That being said, so much of the financial process can be streamlined with a reliable solution like InvoiceSherpa. At this point, it’s time you found out for yourself what it can do for you!
Efficiency is key for lawyers, as your time is money. InvoiceSherpa is the premier invoicing solution that caters specifically to the nuanced needs of attorneys. We transform legal billing from a tedious chore into a streamlined, error-free process.
What sets our software apart is its seamless integration with Clio, a widely-used legal practice management software, which enables lawyers to synchronize their case management with their billing.
This integration ensures that every billable hour and expense is meticulously tracked and accurately reflected in invoices, reducing the risk of lost revenue due to unbilled time or expenses. We also have integrations with LawPay, Quickbooks, Xero, PayPal, Authorize.net, and more.
The automated invoicing system effortlessly handles the initial invoicing, follow-ups, and late payment reminders. By automating these processes, attorneys can focus more on their clients and less on the administrative burdens of billing. You can also customize every step of the funnel for your specific law firm, right down to the wording on your invoices, late fees, etc.
With robust time tracking features, InvoiceSherpa ensures that lawyers are properly compensated for their work without the added stress of manual time entry.
The software's capability to auto-collect payments and directly deposit them into your bank account simplifies the payment process, encouraging prompt client payments and improving cash flow.
Your clients get their own custom payment portal, which adds a level of professionalism to the process while also eliminating friction associated with getting clients to pay. The platform also offers secure payment options for added convenience to clients.
To top it all off, managing your finances becomes simpler as you have access to an intuitive dashboard that showcases your cash flow, accounts receivable, and other key insights.
You get all this at a fraction of the cost of hiring an AR professional, and you get to remain in complete control of your finances. What more could you ask for?
With a 14-day free trial, we invite you to see for yourself what a difference our solution can make in your law firm billing process. Get set up today in just a few minutes!
That concludes our complete guide to legal billing for dummies!
We hope this conversation on how to do billing for lawyers has left you with a clear understanding of law firm billing guidelines along with the role of technology in supporting your processes. Effective billing for lawyers hinges on clear communication, meticulous time tracking, frequent invoicing, and the strategic use of automation.
You can enhance your billing processes by embracing these best practices, ensuring accuracy, improving cash flow, and fostering client trust. Remember, efficient billing is not just about getting paid - it's about maintaining the financial health and reputation of your law practice.
You can learn more about the world of finance and billing in our blog. We have articles on the accounts receivable formula, maximum invoice late fees by state, AR reconciliation, what is a good AR turnover ratio, writing lawn care invoices, and more.
But with the best accounts receivable software just a few clicks away, why not take a few moments to harness the power of automation in your law firm today?
Start with InvoiceSherpa today and experience the pinnacle of precision and ease in legal invoicing. Join the ranks of satisfied attorneys who have transformed their billing with the #1 invoicing solution.
Posted on March 4, 2024
