If you want to boost your law firm’s bottom line, you can start by improving your billing hygiene.
Do this by keeping good time records, communicating regularly with clients, and following up on late accounts. Most important, it means billing promptly.
“[A] part of the profitability picture is ‘billing hygiene,’ or the golden rule of promptness in pursuing payment,” according to this article from the legal tech company Smokeball for the National Law Review. “If invoices aren’t sent out promptly, they won’t be paid promptly. Setting and maintaining regular billing cycles sets a precedent with your clients and helps avoid the sticker shock of a huge bill at month’s end. And when billing is timely, the value you’ve provided is still fresh in your client’s mind.”
Another tip: set profitability goals.
“For every dollar you bill, what percentage will be profit?” writes Jane Oxley of Smokeball in the National Law Review piece. “Many small firms have no idea what their profit margins are or should be. Your best bet is to track time relative to revenue, minus firm costs. Legal practice management software that tracks all your work in real-time is crucial to accurately producing these metrics. Productivity analysis that spans matter, practice areas, and other categories whose measurement is important. Time-tracking can even be done on flat-fee cases, showing actual revenue was generated from that work. Over time, you’ll gain a view of your most profitable clients and practice areas.”
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Tips for Better Billing Hygiene
“Billing is an essential aspect of running a successful law practice,” says Erika Winston of TimeSolv. “It is how you receive remuneration for your work, take care of your office bills, pay your employees, and compensate yourself. If done incorrectly, your billing practices can threaten the very existence of your firm.”
Here are four ways to improve your billing hygiene, courtesy of Winston and TimeSolv:
- Have a written billing policy. “The first step in implementing proper billing practices is establishing them and writing them down as standard office policy,” writes Winston. “Determine how you want your billing process to work, including each staff member’s duties. Create written policies, so there is no question about your time tracking and billing expectations. Distribute these policies to all members of your firm and periodically review them when necessary.”
- Make your bills as detailed as possible. Let clients know exactly what you have been doing for them.
- Bill regularly and promptly. Timely billing means timely payment.
- Run financial reports. “Not only do they provide you with a clear view of your firm’s financial health, but they can also help you implement improved billing habits,” writes Winston. “Reporting also allows you to identify overdue invoices, so appropriate collections procedures can be instituted; stay within budget for individual matters and projects; identify the most profitable practice areas; detect profit-stealing client tasks; properly manage client trust accounts; identify billable time that is not being invoiced.”
Sources: National Law Review and TimeSolv
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