For many lawyers, keeping track of time spent on clients is a major pain. Accurately tracking your hours takes time, even if it’s just a few extra minutes a day—not to mention that you might balk at the thought of using time-tracking software and prefer to estimate hours off the top of your head.
However, when you do this, you’re not only risking overbilling, which is unfair to clients. You also risk underbilling. Unlike overbilling, which happens when you invoice a client for more than the services provided, underbilling occurs when you invoice for less than the services provided.
It’s not harming my clients, so what’s the big deal?
Though underbilling may sound like it’s only a minor loss for your law practice, this isn’t necessarily true. If the bill is grossly below expectations, for example, it can cause a slew of problems for your bottom line.
Here’s how underbilling can happen, why it’s bad, and how to stop it from happening to you.
How it happens
No one likes missing out on revenue, so why exactly does underbilling happen? Underbilling can happen for several reasons.
Slow or poorly-managed billing practices
For some attorneys, underbilling services is an expense that is seemingly worth the risk of not having to manage set hours. However, those extra 10-20 minutes a day add up, and when life gets in the way of designating time aside for accurately tracking billable services, you might find yourself putting it off or foregoing it entirely.
Underestimation of project expenses
Conversely, maybe you have time-tracking reports down pat, only for the caseload to be more extensive than planned. In this case, you might find that you’ve underestimated the initial expenses, leading to underbilling for that month.
Attempts to rectify previous overbilling
If you accidentally overbilled in a previous month or quarter, it’s not entirely uncommon for attorneys to try to balance the scale by underbilling the next invoice.
Sudden changes to the project
No one likes having plans changed without being informed. It does happen, however. If your client springs new (and costly) expenses on you at the last minute, even the most diligent time-tracking might be off as you rush to accommodate the additional project expenses. When changes to the scope of a project occur without timely communication, you might then be surprised to find a monthly invoice that is grossly beneath the agreed-upon terms.
Imposter syndrome for newer lawyers
If you’re just starting out as an attorney (sometimes even if you’re not), charging clients for vast chunks of time can feel intimidating. You can feel like a fraud—even though you’re not.
You don’t want to lose the client, and seeing the price tag on those hours you spent on their case can lead to you underbill the client.
Why underbilling is bad for your practice
So, why exactly is underbilling bad? After all, your client isn’t the one missing out on the money, and it’s your choice to cut time-consuming corners and miss out, right? Unfortunately, underbilling can farm your business in several ways.
In all cases, there’s a significant loss of revenue if you continue to underbill clients, regardless of the reason for doing it.
Not only do you lose revenue from underbilling, but sending cheap invoices to clients can imply that you don’t know what you’re doing, which in turn might lead to a loss of credibility and clientele.
At the end of the day, being unable to manage time and track accurate hours can feel overwhelming and lead to self-doubt.
How to stop underbilling
By now, it’s clear that underbilling is best avoided, but how do you stop underbilling? Here are a few tips on ways to ditch the bad habit for good:
Use a time-tracker
With so much being done remotely, there are many options for successfully tracking your time. Whether you want to go about it the old-fashioned way and set a kitchen timer or want a more efficient way to track time by using a time-tracking app, the sky’s the limit.
Hire a bookkeeper
If you absolutely can’t stand the thought of tracking your hours, get someone else to do it for you. That way, invoicing can be out of your mind while you work on other important matters.
Don’t be afraid to charge your worth
Feeling green and uncomfortable charging clients the rate you really deserve? Don’t be. As a professional, you’re offering your premium services and should charge accordingly.
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