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Collection & Distribution of Fee Income

For people outside of the legal profession, the profession may seem pretty straight forward. An attorney litigates and gets paid. End of story, right? Unfortunately those of you who are involved in the legal world understand that there is much more to be concerned about.

In the legal profession lawyers operate under the terms of eat what you kill. In other words if you put the hours in, that is what you expect to get paid for. This seems to make sense and it does. The issue arises when a firm is trying to distribute income among a number of different attorneys or of-counsel.

Collection of Fee Income

The problems associated with the collection and distribution of fee income can best be understood if you start with how fees are collected. It is rare that a legal invoice is paid in full by clients. More often than not legal invoices are paid in installments.

Distribution of Fee Income

One may think that installment payments shouldn’t cause a major issue for firms, but the truth is it absolutely can and does.

Most multi-lawyer firms have partners who manage their group or department’s finances as if they were an independent business. This means that inside of a single law firm fees from one legal matter need to be distributed amongst multiple partners and their groups, based on the time they spent working on the matter.

In what may further complicate the distribution of fees, it isn’t uncommon that fees have to be distributed amongst off counsel, who do not even work for the firm.

The Real Problem: Installment Payments

As previously mentioned, legal invoices are often paid in installments. When this happens fees must be distributed amongst the attorneys involved based on their billed amounts. However, before any attorney is paid even a portion of the total fee due, expense reimbursements must be accounted for.

The following example shows how an invoice of $320 is split into two installments and distributed based on the amount each attorney billed.

Invoice Date Invoice # Attorney A Billed Amount Attorney B Billed Amount Billed Expenses Invoice Discount Total Invoice Amount
07/01/2015 101 $200 $100 50 $30 $320

Attorney A Billed Fee (including Discount Allocation) = $180    ($200 – 10% discount allocation)

Attorney B Billed Fee (including Discount Allocation) = $90      ($100 – 10% discount allocation)

Total Billed Fee (including Discount Allocation) = $270

Payment Date Amount Total Collected Fees A’s Portion of Collected Fee B’s Portion of Collected Fee
08/01/2015 $160 $110* = 110 x 180/270

=> $73.33

= 110 x 90/270

=> $36.67

09/01/2015 $160 $160 = 160 x 180/270

=> 106.67

= 160 x 90/270

=> 53.33

* First $50 is allocated to the Expense reimbursements.

This process needs to be carried out every single time an invoice is paid. Errors are easy to come by when most lawyers rely solely on excel spreadsheets to manually calculate these fees.

While the collection and distribution of fees is complicated, it doesn’t have to be for your firm. CosmoLex’s practice management solution automates the entire process and can generate Collection Reports for each biller or matter owners with a click of a button. Try it free.

Rick Kabra

Dr. Rick Kabra is CEO of CosmoLex Cloud, creator of cutting-edge technology solutions to help solo and small law firms law firms. Rick has a Ph.D. in Electrical Engineering from NJIT and has over 10 years of experience in the legal software industry catering to the specialized technology needs of small to mid-sized law firms. Rick has given numerous seminars and published articles on legal technologies such as law practice technology management, cloud computing, and legal billing, business & trust accounting compliance.