Ask an Expert: Basics of Billing and Accounting Compliance
The words “billing” and “audit” are often the last ones an attorney wants to hear. We spoke with Amy Reynolds of Law Office Systems on ways to take advantage of legal technology to take the pain out of running your firm, while meeting the various rules and regulations surrounding billing, accounting and the security of personal data. Maintaining compliance and simplifying billing are just a few steps away!
Joshua Goldberg, CosmoLex: Let’s jump into our first question. So, what is the most common billing and accounting mistake you witness law firms making?
Amy Reynolds: As a former paralegal and now being a legal technology consultant, when I do legal billing for clients, the biggest mistakes I see are incomplete, incorrect, or missing data. Incomplete data offers clients and vendors the opportunity to question a time entry or an expense on your bill which directly cuts into your profits.
Next is incorrect data. Similar to incomplete data, this will leave you wide open to having your bills disputed and your accounting called into question. Aside from delaying how quickly you’ll get paid, there’s also an issue of whether there’s over-staff turnover. In those events, you’re likely to end up with the incoming billing or accounting person with no way to go back to the source of the data to ask any questions or correct any of the data.
And then last, but certainly not least, we have missing data. This is your worst nightmare realized. Missing data, while very common, is the hardest mistake to fix and the riskiest to have occur. Most people don’t even know that they’re missing data until it’s too late.
JG: Awesome, thanks so much Amy. That was pretty straightforward, so we’ll jump right into the next one. Is there a simple way to get paid on time?
AR: Yes. So the simplest way to get paid on time is by sending bills out regularly using products that have dashboards or reporting features, late billing or interest charges, and hiring outside billing specialists. By sending your bills out using a consistent billing schedule, you guarantee that there’s going to be a consistent cash flow. If you’re not getting your bills out on a consistent schedule, that’s when you should look into hiring a legal billing specialist. As far as taking advantage of billing and accounting features, CosmoLex billing and accounting products have a dashboard or a snapshot section that allows you to look at what you’ve done recently and see where things are in kind of a wide glimpse.
You also have payment solutions and payment options. So I’ve mentioned late payments or interest. Nobody wants to pay extra for money that they already owe and it’s a pretty good deterrent. On the flip side of that, you also have the option of using payment solutions such as Evergreen Retainers, client portals, credit card processors, or e-check. And then, last but certainly not least, as far as hiring outside billing specialists, this will afford you the opportunity to take that time crunch and the need to have this task completed and put it on to somebody else’s plate.
JG: So you mentioned CosmoLex and then other billing solutions like that. Any other tips or tricks on how to more consistently generate your bills?
AR: I’d say the big two are, besides getting your bills out on a regular schedule, well prepare the bills to be sent out the last week of the month, and then usually send them out on the last day of one month, or the first day of the following month. Another trick is instead of doing what they call a “net 30” or giving somebody 30 days to pay you, you can ask that the payment be due upon receipt of the bill. That also puts a little bit of urgency in things, and usually returns come in a little bit faster.
JG: Gotcha. And on the late payment side of things, do you recommend that they work that into their agreements?
AR: It varies from firm to firm but I would say, if you are going to institute either a late payment fee or interest on overdue balances, certainly use your billing and accounting program to do that. They all contain a feature that, to some degree, allows for that and in some ways automates that.
JG: Next question here – so when should my firm consider using a billing specialist?
AR: So there’s a couple of instances in which you can look at your firm and look at how things are going and say, “Do I need to hire a billing specialist?” The big one is when your bills have not gone out in months. Most of our ongoing billing clients are the result of attorneys who had fallen behind on sending their bills out and didn’t know how to get back on track, or how far off they had gotten off track. We’re able to usually come in, run reports to assess the situation, see exactly where they stand, and then strategize on how to get that firm back on track.
Another instance is, when you’re having cash flow issues. This is usually an issue of either getting your bills out or getting payments in. In which case, using a billing specialists will allow for you to implement better processes, better procedures, and improve your cash flow in a short amount of time.
And the third one is, when it’s taking you or a staff person too much time to complete the task of sending your bills out; the holy grail for attorneys and, in some cases, their staff is the billable hour. I have clients that have now saved anywhere from eight hours to an entire work week by outsourcing their billing and accounting to other professionals.
JG: I think we do hear it a lot from attorneys, the instance of not having gotten their bills out in months. Is there any common thread that you find that slows them down?
AR: The biggest one is that there’s always the conflict of running a business versus being an attorney. And there’s always going to be those competing interests. When you don’t have a good process in place and you do end up off the tracks and in a situation where you don’t know where you stand.
So, having reports and data is crucial because you want to know where you stand. If you think you’re getting paid in two weeks and it’s actually two months, you want to know that, so that you can either implement a better process or procedure or you can do something about your retainers or offer different payment options.
JG: At the end of the day upping efficiency, that’s for sure the key. And I know that CosmoLex does help in this, but they’re many, many billing programs that work for that. And I think that if you’re doing your bills manually, that’s probably another one of those ways that people get behind really quickly.
AR: Certainly, and I’ve had instances where clients or potential clients have called and said, “I’m doing this manually” And in some instances it’s they’re typing it up in a Word document. In other instances, it’s using an Excel spreadsheet that has some formatting added on to it. Ultimately, these are not efficient.
JG: So, our next question here – should this person be internal or outsourced?
AR: This is a kind of tricky question. I’ve worn both hats in my career, as having been a paralegal who was a staff person and helped with these things as well as now, being on the legal technology consulting side and helping firms in that respect. Having said that, I’m going to start by answering and saying this is going to vary from firm to firm based on your firm’s needs.
An internal person is someone who should be experienced and have an understanding of the legal billing process in whatever software that your firm is using. This will give you the peace of mind and confidence that they understand what is at stake and will be able to complete the task at hand correctly. If it’s an internal person, it should be somebody who can be trusted with the keys to the castle. Ultimately, you’re entrusting this person with your financial data, bank account numbers, what the balances are, where the money’s coming from, things of that nature. Things that are very sensitive.
And I can’t stress this one enough. You’re giving somebody carte blanche with this information. So if you have any doubts about who can be trusted internally that’s a cue to look into outsourcing your billing to somebody else.
As far as an internal person, you also want somebody who you can have an open dialogue with. There should be no uncomfortableness around being able to ask questions and get answers regarding the status of important data sets, such as your accounts receivable, your accounts payable, client collections, what your regular payroll is, and the like. If you’re uncomfortable with this, if you think it’s going to be awkward to have somebody internally that knows this information or you have to have those conversations with, again, this is one of those prompts where you should consider a legal billing specialist. On the outsourcing side, if you think outsourcing is the way to go for you in your firm, when you’re considering a billing specialist, you should consider your firm’s needs above all else.
JG: So on the outsource side things, are there any tips that you have for locating someone to do that for you, aside from yourself?
AR: Certainly. There’s a number of different ways. Your state bar associations are going to be able to lead you to reliable, trusted people who they would refer and they have referred. Another situation is if you speak to other attorneys, they’re going to be your ally as well, because they wouldn’t suggest somebody that they wouldn’t themselves trust. So that’s another route.
And then the third, most common one that I see is, usually through other financial professionals.
JG: Next question. Which accounting reports should we be regularly reviewing to make sure we’re in compliance?
AR: This is a great question and it comes up pretty often. So there’s four that I would say are really the pivotal reports that you want to be reviewing regularly to make sure that you’re compliant. Profit and loss, which is kind of the overarching, what’s coming in, what’s going out. Your accounts receivable. So what is the status of your invoices? Do you have any that are severely aged? So when I say aged, I mean, they’re over 120 days old.
Your accounts payable and summary reports. What do I owe, what’s out there? How do I make sure that they coincide so I’m making enough to cover what’s going to have to go back out.
And then timekeeper reports. This one is probably just as, if not more important than profit and loss because this is where it all begins. Whether you’re the timekeeper, or you’re in a firm with multiple attorneys and you have several time keepers, these are the reports that are going to give you that synopsis of what everybody is billing. Where is the money coming from? Is it coming from a particular practice area? Is it coming from a specific attorney? Is one attorney more expensive than the other?
This also is indicative of how well your timekeepers are reporting the data. If you have one timekeeper, that has 10, 15, 20 hours more a month, than the next timekeeper, but they do the same job, or the same amount of work, then you know that you might have to do a deeper look and see what’s really going on. Is the person not working as hard? Is there just not data to support what they’re actually doing?
JG: Since we are talking about billing especially, is this something that should be outsourced at the end of the day?
AR: It certainly could be. If you are going to be outsourcing your billing, it’s certainly something to either ask if it will be added on as part of the service or if there would be an extra charge or extra time expense that would be tied in. But it’s certainly something the outsourced person can handle because they’re already dealing with that data.
And they should have access to run those reports. It’s obviously not on the billing person to correct anything unless that’s been asked of them, but some of it is just bringing it to the attorney’s attention. Because there is that time focus conflict of being expected to practice law while running a business. You kind of have to raise the white flag and say, “Hey, I need you to pay attention over here. This is really important.”
JG: Yeah. And are you helping them with the analysis of that data as well? Or just generating those reports for them? I know that a lot of people have a difficult time even understanding what these reports really mean at the end of the day.
AR: Oh, certainly. It depends on the client. I have some clients that are a little bit more hands-on a little bit. They want to just know that the data’s there and have us present to them. But I have others that, they have a back and forth conversation with me.
You do a really deep dive, and do the analysis with them and say, “This is where you were when we started the year or at the end of last year, and this is where you are now. Is this meeting your goals? Is this meeting your needs? How do we keep this and keep it going in the right direction and help you move forward?”
Whether that’s making more money to expand the firm, hire more people, update the technology what have you or maybe it’s just a basic goal of, “I want to make more money next year than I did this year.”
JG: Awesome. Next question. What are simple tips for keeping client retainer records organized?
AR: This one is really simple, but it’s probably the most understated. Use a billing folder system. This is going to look very different based on the firm, the practice area, what the firm’s billing needs are and their accounting preferences. But the quick and easiest way is to make sure, however it looks, you have a distinct and consistent billing folder system. You know where your bills live. If a client calls questioning a bill or needing additional details, there’s a quick recall, because you know exactly where it lives and how to find it.
JG: Any feelings or thoughts on using a client portal?
AR: Oh certainly. If you’re using CosmoLex, you have that option. If you’re using something like CosmoLex that should be a consideration if you do a lot of billing to clients, especially if they’re longer clients where you have them on a longer retainer. Certainly the best way of using those kind of client portals where you can have that open communication between you as the attorney and the client and say, “Here’s a document that needs to be signed, here’s the bill.” I think they’re a great asset and if you have the option to use it definitely do.
JG: Yeah, we definitely talk about it as one of the most secure ways to communicate with your client as well. Email’s great, but inherently an insecure system. And a lot of softwares have it not just CosmoLex.
AR: Especially in a day and age where every time you turn on the news, you’re hearing of data breaches or hacks. Programs that offer bank level security will certainly meet those needs in making sure that you stay compliant in how you communicate with your client.
JG: Our next question – does taking the time to review a pre-bill makes sense for time keepers?
AR: It will always makes sense. This will look different firm to firm. But timekeeper should always review their time before managing attorney or bookkeeper reviews it and approves same. In some firms, you have a billing person internally that is ultimately going to be the kind of first checkpoint where they’re looking at the time slips and the expense slips and they make sure they’re kind of the first passes. The bill passed and will see on to the attorney for a final stamp of approval, and then we’ll send a bill out.
In other instances, especially if it’s a smaller firm, sometimes it doesn’t have those. You don’t have those checkpoints or you don’t have those procedures in place, but ultimately you are the person who’s putting the data in. One of the other aspects of it is by having done this first task yourself, and then having a managing attorney or bookkeeper oversee that as a second task.
The big takeaway here is by doing all of these things, you reduce the chance of a client ever coming back and disputing your bill or questioning things, and I see it all the time and while it’s common, it’s very correctable.
JG: So who do you see that actually finalizes the bill, is it the attorney or the outside billing specialist?
AR: Again, I think it depends on your situation. In some instances the attorney will say, “I want last rights to this and I want to take the final pass and give you a stamp of approval. And then it could go out. In other instances, I have clients that I send them pre-bill and they see all the data, they mark it up, sometimes they correct things or add on to a sentence. But ultimately it reads the same or it’ll read better . Then I have a discretion to say, “Okay this looks good, I don’t have any questions,” which means, the client shouldn’t have any questions and then send it out.
JG: Gotcha. I think that makes a lot of sense too. And I think that having a set process, a set thought process gets your bills out faster and more accurately.
Okay. Coming into our last pre-selected question – what is the biggest difference between general and legal specific billing/accounting software?
AR: The answer’s kind of in the question. General billing and accounting is just that. It’s general. Using a general product is limited in its functionality because it looks to attract the widest customer base.
Using the legal specific billing or accounting software or practice management program takes into account the needs of the attorney and is focused on building in the compliance and the regulations to match what their end user’s needs are going to be. They’re always looking at the interface. They’re always looking at what they can do to be the most helpful, be most compliant with all of those rules and regulations in mind so that if a firm, heaven forbid was ever audited or their data was questioned, the data that would need to be recalled in order to answer questions would be able to be produced quickly and easily, and the end result would be correct.
JG: One question I have that comes up a lot when we talk to attorneys, is that their accountants love QuickBooks which you and I both know is a generic software. What sort of answer would you give to them to get them to sway legal specific side?
AR: I say two things. I would say one, if this is what your accountant is comfortable with, there’s usually ways to export the data and put in the format in which they need it. Sometimes that looks like a link, sometimes it’s exporting into Excel then uploading into QuickBooks. That said it doesn’t make you dead in the water. It’s not an end all be all.
You can take the same data and put it someplace else because if the data is correct, it’s going to look the same no matter where it lives. On the other side of that, I would say while QuickBooks has its merits and it’s accountant friendly, it doesn’t take into account those minutiae details that you really need to pay attention to in order to avoid the audits, to avoid the questions, to stay compliant, to meet all the rules. And there are plenty of them.
Do the two products link or how do I get the information from point A to point B? That’s part of the software selection process that we do take into consideration as consultants, of where does the data live? How do you want it to work? Who needs this information? That said, on the flip side, your accountant should also meet your flexibility. Whether they do them in a QuickBooks or a Xero, they should also be knowledgeable enough, if they’re going to service legal clients to be able to say, “I can work with CosmoLex. I can work with other legal specific products to run those reports, to get those data sets and use them the same way if I ran an almost identical or identical report in a QuickBook.”
JG: And I think the last part is the most important part, which is that the numbers should always be the same. And if you are running into an issue where they’re not the same consistently, that’s when you definitely take a deeper dive and try and figure out exactly what’s causing the issue.
JG: Okay. Great. I’m just gonna do a quick wrap up here of what CosmoLex does and what law of systems does and then we’ll go back to some more questions. But just a quick overview, CosmoLex is an all-in-one legal specific practice management software. It includes all the things you see here, legal time and billing, calendar task, documents, emails, a general practice management features but in addition, both the business accounting and the trust accounting, are part of our software as well. It sort of gives you the front and the back office all in one software, and you can feel free to check us out and a little bit more about us at cosmolex.com or feel free to give us a call. With that, I’ll pass it back over to Amy.
AR: Thanks Josh. As part of the presentation and thank you to CosmoLex for according me the opportunity to help answer questions and showcase both myself and the company. We would like to offer a free 30 minute consultation, normally $125 to anybody who’s attended today, so that they can either answer actual questions or do a deeper dive on CosmoLex. We use the product regularly, so we can certainly answer CosmoLex questions, billing and accounting questions, we offer other services. If you have other needs, we can certainly try to help you or get you in the right direction, but we would love to continue the conversation after the webinar, so we’re offering a 30-minute conversation.
JG: Awesome. We will go ahead and jump back into some questions. So the first question is from Jennifer which is coming back to the pre-bill question. So she asks, can I go back to the pre-bill topic and inquire as to the time frame to review and return pre-bills?
For example, if you want all your invoices out by the 15th, when do you recommend the pre-bills and how much time between for the attorneys to review and return to your billing administrator in the office in order to finalize and get the final invoice out? So we’ll take that in two parts. So, when do you recommend running your pre-bills when you wanna get them out by the 15th?
AR: So the answer is going to vary based on who you’re dealing with and how they work. But I would say safely, five to seven days. Internally, we use the five-day rule of if the bills are going out on the 30th everything has to be in and accounted for by the 25th, so that even if you have a busy day in between or you just don’t get there, you still have time on the clock to make sure that your bills get out.
I would say if you have to go past seven days it’s really a stretch and that’s one of the keys of maybe we have to look at our process and see how we’re doing this. But to answer the question in short five to seven days.
JG: To take the second part of that, how much time between for the attorney to review or return to your billing administrator in order to finalize and get the final invoice out? I think that basically answers both questions. So you’re suggesting at least five to seven days.
AR: Exactly and I think, and again it depends on who you’re dealing with and what their schedule looks like. It’s hard because you have to manage your attorney, you have to lock down what their availability is and make sure that you get those bills in front of him or her, review it and then back out with any edits in a timely fashion.
JG: Our next question here is from Diane. What’s the best way to capture and track time without an entire practice management system?
AR: The short answer is, there are products out there that only look at time and billing so if you don’t have a full blown practice management need, look into those other products. They will allow you to just focus on punching in time, calculating bills and the payments to those bills.
JG: Shirley would like to know aside from following the TCPA rules, what other rules, laws, guidelines should we be aware of when making collection calls?
AR: I would take a look at your ethics rules and your state bar. Your state bar is going to be your best friend in this instance because if you have questions regarding how to proceed because the rules do vary state by state. But ultimately it is the TCPA if I remember right, is the acronym.
JG: Yeah, Telephone Consumer Protection Act.
AR: Yeah, so that’s your starting point. And then the next step is to look at your state and more local regulation to make sure that you’re clear across the board and any collection practices are up to snuff. And if it ever gets contested you will win out, because you’re following the rules that govern you.
JG: Awesome. The last question that I see at the moment is from Vicky, who wants to learn a little bit more about three way reconciliation.
AR: The gist of it is, if you look at your banking with three different eyes, the numbers should all be the same and reconcile the same way. So if I’m doing this with CosmoLex, you put in the bank fee which is one of the three. That will reconcile against what you have in CosmoLex as far as the data you’ve produced. And that will reconcile that those transactions match. So ultimately like we were discussing earlier, at the end of the day, no matter where the data lives, the numbers should all be the same. And three way reconciliation is the most efficient, most effective way to guarantee that your data is not just present but is correct.
JG: Yep, 100%. Your book balance, your bank balance and your client ledger balances need to match up. At the end of the day, it is logical and makes sense that those three things should be the same, but that’s why reconciliation exists. Just like when we were taught when we were kids to reconcile our check books, and I don’t know how many people still do it, but checking all the debits and credits and seeing what’s cleared and what’s uncleared is at the end of the day the only way to make sure that everything is where it’s supposed to be.
Alrighty, I don’t see any additional questions. Well again, thank you Amy so much for joining us today and thank you all for attending our webinar.
AR: Thank you guys.
For the full recording and answers to even more questions on how to simplify billing and maintain compliance, check out the complete webinar Basics of Billing and Accounting Compliance