Tips For Improving Your Law Practice Cash Flow: Billing Procedures
Improve your cash flow to improve the success of your practice. In the latest in our series on cash flow we want to look at your billing procedures. In particular we want to look at what you bill and how it is tracked in your legal office management software. Legal billing tends to be divided into two areas: expenses and billable hours.
All practices should track expenses. Even if you charge a flat fee rather than billing hours and expenses explicitly, it’s important to track expenses so you can be sure the fees you charge are in line with how much it costs to handle a given matter. Of course if you do bill expenses for reimbursement, then it is even more important to track every costs associated with a matter.
Unfortunately many law firms suffer from “expense leakage” that cripples their cash flow. An attorney out in the field incurs a cost but doesn’t keep a receipt. The cost never gets recorded so the client never gets billed and the firm loses money. It may be only a few dollars, but multiply that by many cases and many days and it becomes a significant loss of revenue to the firm. You need a system that makes it easy for everyone in the practice to record expenses. Ideally you should use a cloud-based solution like CosmoLex because costs can be recorded immediately even if away from the office.
Billable Hour Tracking
Just as with expenses, all firms should record billable hours regardless of the billing model you use. If nothing else it allows you to verify the profitability of various cases and areas of practice. Billable hours should be recorded at least daily and preferably as soon as the hours are incurred. Many attorneys make the mistake of trying to recreate their schedules from memory weekly or even less often. Not only are you likely to forget about certain hours, but you might inadvertently overestimate the hours spent and bill for services not rendered, a serious ethics violation.
Take your billable hour tracking to the next level by having a senior member of staff oversee the legal billing software. Verify that the billing seems reasonable and that nobody is billing far above or below the average number of hours. Compare the task lists to the billing to ensure that all hours are getting on the invoices, since unbilled hours are lost income.
In this entry we’ve talked about what you bill. Stay tuned to this blog because next time we will look at how you use your billing software for lawyers to invoice, and the impact it has on your practice’s cash flow.