The challenge of law-firm billing

While law firms are getting better at focusing on internal strategies for improving external client-service delivery, billing procedures still bear the brunt of many a client’s criticism, with a lack of transparency and efficiency looming large in many a complaint. David Thorpe, vice president and general manager at Thomson Elite in Europe, explains how technology can help.

Why are lawyers so reluctant to bill? It is an odd but all too common phenomenon given that revenue (and hence salaries and profits) depend totally upon the timely issue of bills. It is perhaps easy to understand this behaviour in junior staff and associates; for these people, the link between a bill and the salary in their pocket may not be obvious. What is still surprising in 2004, however, is the number of partners who are tardy with their billing.

For a small number of lawyers, practising law is the main driver, with the commercial aspects and financial rewards a lesser concern. For the majority, however, the answer is very simple: billing is just too complex and time intensive.

Consider your telephone bill, whether it be your land line or mobile. Am I the only person who cannot make sense of it, with its myriad of different rates, tariffs, inclusive free calls, different services, etc.? And yet, in spite of the complexity of the bill, it lands on my doormat with painful regularity, exactly when it should. And why is that? It is because the process is automated. Imagine if each and every telephone bill was scrutinised manually for accuracy, with one or more drafts produced and further amendments made before the final copy was dispatched to the consumer. Under these circumstances, it is easy to imagine a sudden drop-off in the frequency and accuracy of bills on my doormat.

As with the telephone bill, there are also many complex aspects associated with a bill for legal services.

Rates

No firm operates with a single hourly rate. At best, there may be a series of hourly rates for different grades of staff, but these may be variable based on any number of factors including:

Practice area;
Client/matter negotiated;
Discounted volume;
Activity/task;
Combinations of the above.

The first stage to simplifying the billing process is to ensure that the rates as agreed for a transaction are accurately recorded as work is being performed. That is to say, as a result of each time entry, the firm’s time and billing software should apply the appropriate charge based on whatever charge structure was agreed when the work was accepted.

Costs

Just as time needs to be accurately valued, so too do costs. In the case of disbursements, or ‘hard costs’, it is straightforward, with the actual cost incurred being carried through to the bill. In the case of ‘soft costs’, for example, copies, faxes, phone calls, online research, etc., the situation can be more complex. You may have different rates for different clients; quantity/volume discounts may apply; and you may have other clients where these costs are factored into the hourly fee rates and should not be charged separately.

Billing prompts

In some cases, billing may rightfully and logically only be due at the end of the transaction. In other cases, there may be billing points agreed between the firm and the client, either exceptionally or under the firm’s standard engagement letter. Such stages may be based on time intervals (for example, monthly interim billing), values (for example, unbilled time and/or disbursements exceeding agreed thresholds); phases reached in the legal transaction; and so on.

‘Billing friendly’ software should be capable of recording any such agreements and alerting fee earners as and when individual matters reach their agreed billing points.

Preparing the bill

The traditional preparation of a bill usually goes something like this:

Fee earner requests paper ‘billing guide’;
Fee earner annotates billing guide with correct billing rates and any write-ups or write-downs to billing amounts;
Annotated billing guide is passed to secretary. Bill is typed on word processor;
Bill and copy passed to finance to check accuracy, VAT applied correctly, etc.
Redrafted as necessary until correct;
Passed to partner for approval, signature and mailing;
Copy passed to finance and posted to matter ledger.

Sophisticated billing software can dramatically reduce the time and effort involved in this process.

In addition to alerting the fee earner to any matters at their billing points, the system should at the same time be able to prepare and print the associated billing guides.

Because the charge rates and costs have been recorded at agreed client rates, the marking-up time will be minimal. Once marked up, the billing guide can be passed to the relevant partner for approval, and then released to finance for processing. Finance will enter the adjustments, and once entered, the system itself will generate the word-processed bill, which may then be passed for the partner’s signature.

The most sophisticated software can further reduce this labour-intensive process.

The fee earner is prompted to bill matters at their billing points. The time and cost information is retrieved by the fee earner online at his or her desktop. Adjustments are entered via the keyboard, and recorded by the software – at this stage without being committed. Once the fee earner has finished their adjustments, the bill is routed electronically for supervisor approval. This electronic routing may be conditional, requiring alternative ‘sign-offs’ based on the level of adjustments made. If rejected, the bill is returned electronically to the fee earner for modification. If approved, the system will generate the word-processed final copy (together with any required file copies), while recording the details automatically against the matter ledger.

The first physical paper produced is the engrossed document being sent to the client.

Modern time and billing software can dramatically reduce work to bill to cash cycles. It can handle the multitude of complex billing arrangements prevailing in today’s competitive environment, automatically initiate the billing process and route draft bills for appropriate levels of approval. Finally, it can generate the client-facing document and record the details within the financial ledgers in one operation.

Perhaps the most clever part of this entire process is the way in which modern software has evolved into browser-based applications with instinctive, intuitive methods of operation that allow even the most technophobic users to quickly become expert at this process.

It is not only telecom companies who can take advantage of accurate, comprehensive and cost-effective billing systems.

David Thorpe is vice president and general manager for Thomson Elite in Europe. For further information, please contact Heidi Simpson at: hsimpson@elite.com.