Archive for Law firm billing

How Matter Planning Actually Works – Part 1

By on February 19, 2012

Firms are increasingly being put under pressure to deliver alternate engagement models, such as fixed fee arrangements or discounted rates, to win new business. In addition to this clients are demanding more transparency in the on-going handling of their matters so they can see for themselves the progress being made and the justification for work undertake.

Before we start to describe the Matter Planning process let examine some benefits firms should experience by using Matter Planning software.

  1. Improve forecasting accurately by leverage historic data on like matters or tasks.
  2. Reduce the risk of taking on matters that will result in lower margins than expected.
  3. Introduce a repeatable process that provides control and discipline in the business development process.
  4.  Reduce the costs and time to respond to prepare an RFP or Alternative Fee Arrangement (AFA).
  5. Drive more new business at a known level of profit.

 Firms can attempt to do matter planning with crude tools such as a spreadsheet or Microsoft Project. This sort of planning can handle the scheduling component of any plan but completely misses the financial analysis requirements. A spreadsheet could be used along with normal time and billing software that offers matter level budgets, however this becomes the start-from-scratch method and it may take years to develop a profitability model that can be manually maneuvered to do a forecast.

 Matter Planning software provides the ability to go back in time and search for similar matters that can then link to provide an immediate historic prospective for a future matter. Convenient links include such items as:

  • Phase and Tasks
  • Specific attorneys and attorney levels
  • Matter rates and actual internal costs
  • Hours recorder and actually billed
  • Disbursements

 After using the Matter Planning software tools the firm can easily develop a “roadmap” of revenue, hours, rates, costs and expected profit for a potential new matter. The firm can now present the client with a comprehensive financial matter plan.

 This however is just the beginning, in How Matter Planning Actually Works – Part 2, we’ll look at how to manage the matters and track budgeted vs. actual performance statistics to then better forecast future matters.

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Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Management, Productivity

10 Best Practices for Split-Party Billing – Paper and e-Bills

By on February 12, 2012

Quite often insurance carriers require law firms to split a bill among two or more parties, this is normally referred to as Split-party Billing. Many times there are complexities that make a seemingly simple task, much more complex.

 We’ll examine “best practices” to both meet client requirements and provide the firm with solid accounting transactions for proper reporting and profitability analysis.

  1.  Split-party Billing usually calls for a master file to be set-up where all fees and costs are posted to that file. Additional “bill parties” are then added with a designation as to what % of the fees and costs will be billed to each of the parties.
  2. The system should check to be sure that 100% of the fees and costs are being allocated at all times.
  3. The use of effective dates for each party is very important, it’s not unusual that there are “in’s and out’s” of bill parties throughout the life of a case. The ‘bill parties” don’t necessarily have to be clients and matters in the system, they can just be an entity called “bill party”. Many times this is much easier to just designate a person or company that will pay a portion of a bill without setting up all the official client/matter information. You just need a name and address to send the bill to.
  4. Normally, in the case of Split-party Billing, a single rate is used to value each time entry. If different rates are used for each party it is difficult to determine a % of each bill to be split, from a dollar point of view. If each party must have a different rate, then the actual time entries are first split, and then valued separately for each party. If different rates are used each party receives a completely separate bill without calculations showing the % split.
  5. Since most Split-party bills are going to one or more insurance carriers it is convenient to get agreement ahead of time on a common phase and task code set to be used.
  6. At the time of billing the system looks to actually generate, in effect a single bill, with each bill party seeing their share of the total bill. So for example, if bill party #1 is paying 50% of the total and the bill is for $10,000 the bill would show all the detailed fees and costs, a “total bill amount” and then a line in the bill showing bill party #1 owes 50% or $5,000. If bill party #2 is paying 25%, they would get the same bill sent to their attention showing on one line that they owed $2,500.
  7. There are a lot of iterations of this general idea of a “single bill”, including different bill formats, including past billing and payment history and outstanding AR or Retainers being applied for each of the bill parties on only their copy of the bill.
  8. In Split-party Billing the “bill parties’ act as “sub-matters” to the master file or master matter. Therefore in many systems, Accounts Receivable can roll-up to the master matter, with the ability to drill-down to a bill party’s portion of the AR.   
  9. Split-party bills can also be separately e-billed to multiple “bill parties”, i.e. insurance carriers.  In the case of e-billing it is not unusual that the e-bill party want all the “pre-split” transactions, the e-bill party already knows what % they have agreed to pay and the LEDES format will handle all of this.
  10. The system should save all detailed transactions so that normal accounting adjustments can be made such as, reversing a bill, transferring a payment, charging interest for one or more of the bill parties, etc.

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Categories: Best Practices, Financial Management, Law firm billing

Survey – Wide Disparity in Billing Efficiency Causes Cash Flow Issues

By on January 22, 2012

In my last post I revealed the details on a study I conducted to see how successfully firms were able to get attorneys to get their time in from the prior month. The results were not bad, 74% reported they had attorney time posted no later than the 2nd business day of the month.

Now we’ll really separate the firms with a new survey that reveals how quickly firms can get edited pre-bills back from attorneys and bills out to clients.

Question #1:

From the time you give attorneys pre-bills hope long before they are due back in business days?

  •  33%    1 – 3 Business days
  • 33%    4 – 7 Business days
  • 20%    8 – 14 Business days
  • 14%    15 Business days or longer

Note: One firm reported that the “billing assistants” bill all month long and there is no requirements; the busiest billing day is the last day of the month.

Question #2:

When in an average month when are you done billing and the bills are sent, emailed or e-billed in business days?

  •  13%   1 – 4 Business days
  • 40%   5 – 10 Business days
  • 13%   11 – 15 Business days
  • 34%   16 Business days or longer

Note: Many firms reported that their billing routinely stretches into the next month and they are sending bills at the same time they are doing pre-bills for the next month.

Here are some quotes:

Worst: “We are very rarely completely done with the bills prior to sending the pre-bills out for the following month.”

Best: “We give the Attorneys 24hrs to respond back with changes or corrections. The morning following the 24hr review period the invoices are created, stuffed and mailed out within 4-5 hrs.

Conclusions

There is a wide disparity between law firms regarding how efficiently they manage the billing process. My review showed it had little to do with size of firm, number of branch offices or type of law they practiced. For example, the “Best” firm above has over 200 timekeepers and many offices. They however are highly disciplined, automated and structured. The law firms cash flow is directly related to getting bills in the hands of clients in the shortest period of time. There are ways to improve the billing process. You might want to review my 10 part series on improving the billing process starting here.

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Categories: Best Practices, Financial Management, Law firm billing, Management

Survey – Getting Time Posted to Improve Law Firm Cash Flow

By on January 15, 2012

Law firms are like a cash registers, there is no revenue until you put the
actual cash in the drawer. The challenge is finding best practices that promote
maximize cash flow. This is short survey from responses to a law firm group
list serve determining how quickly law firms can close a month. The month-end
closing process is a key step for most firms in the cash flow process.

Here are the key steps to cash flow:

  1. Get all time and cost posted
  2. Balance the system
  3. Close the month
  4. Print and distribute the pre-bills
  5. Enter the pre-bill edits
  6. Print and send final bills
  7. Collect the cash

So how fast can law firms close the month by getting in attorney time
for the month, as measured in business days from the end of the prior month?

2nd Business Day ——– 44%

1st Business Day ——– 30%

3rd or longer Business Day ————- 26%

I think this as pretty good. Most firms responded that within 1
business day of “closing time entry” they have balanced their system, closed
the month and are starting the pre-bill process. The above survey does not measure
the time and costs that are not entered before the close-off.

In a future post we’ll take a look at how long it takes to get edited pre-bills
back from the attorneys and bills out the door. Leave a comment here for how
your firms closes off Time Entry at month-end.

 

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Categories: Best Practices, Financial Management, Law firm billing, Management, Productivity

Stop the Attorney Time Entry Conundrum

By on January 8, 2012

There are multiple problems with getting attorneys to track and enter time on a daily basis. Let’s try and clearly identify the problem and see if we have some solutions.
 

  1. It’s not natural. We can demand and threaten all we want, but quite frankly, detailed time entry is not natural for a professional. How would all of us non-attorneys like to track every tiny task we do all day long, and enter it into a computer down to the tenth of an hour (.10)? You have to be kidding right? Let’s see a show of hands, just as I thought, no hands are in the air.
  2. It’s a form of micro-management. I want to practice law, solve problems, compete like an athlete, and detailed time entry is the client’s form of micro-managing every little thing I do.
  3. It’s not convenient. Stop what you are doing, enter the time, start back up again and switch to work on another matter. This is a painful process, almost as painful as just working all day (week?) and then trying to parcel together all the (hundreds?) of time entries for the day. Let’s see, it’s 5PM and I need to recreate my time for today, did I talk to that client for 6 minutes, or was it closer to 12 minutes, I’ll enter .20 hours (12 minutes).
  4. Out of the office … too bad. I’m off-site doing depositions and meeting with my client, detailed time entry isn’t very easy. It’s a big case and I’ll be doing this for the next few days. I’ll just enter in 8 hours and call it “depositions and meeting with client”, nope can’t do that, the carrier won’t pay they want “micro-management detail”.

 We could of course go on and on about the “issues”, now let’s talk about how to improve the process and profitability.
 Improving Time Entry:

  1. Admit it’s a Pain. The first step to get attorneys on board with the time entry process is to admit that all of the “issues” above are true and painful. No attorney enjoys entering time. Make sure the attorneys know that you know this and are prepared to mitigate the pain as much as possible.
  2. The Real Reason for Time Entry, it’s the Job. When you want to charge clients $250 – $1,000/hour, with few restrictions or limits they want detail for every moment of your time. If you don’t like this level of scrutiny find a new job, many others have. Just accept this as a way of life, the life you’ve chosen.
  3. The Firm will Help. Firms are smart to individually help attorneys with time entry. Senior attorneys and partners may have secretaries to help them, we assume their billing rates are high enough to easily afford the labor costs. Time entry software isn’t always easy, take extra time to train attorneys, be patient, show them short-cuts after they learn the basic program. Provide attorneys the option of using a web time entry product or a mobile app to assist when not in the office.
  4. New “Found Time” Tools. Utilize the latest tools that track the attorney’s entire day on a task by task basis, then easily turns them into otherwise missing time.
  5. Send it off-Shore. That’s right, if time entry is just going to be a problem and expensive attorneys and staff struggle with it, take a look at off-shore time entry. Scan old-fashion paper sheets and let someone else do it.

 

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Categories: Best Practices, Financial Management, Law firm billing, Management, Practice Management, Productivity

5 Steps to Improve Your Firm in 2012

By on January 2, 2012

It’s time for your firm to make your 2012 News Year Resolutions; these might help you decide on some that will be sure to please the partners.

Improve Cash Flow. I’ve written several articles in the past regarding improvements in cash flow, mostly around the collections process, here is one. Improving cash flow starts with the engagement process. All new clients and even some new matters require a standard firm engagement letter that is executed BEFORE starting work for the client. Payment terms must be clearly identified along with retainer requirements. Is the “retainer” classified as an IOLTA payment in your state, there is actually a big difference, read here.

The use of automated Collections software with Wizards (workflow) will greatly improve collections, see Mary’s story here and here. The idea is simple, you’ve done the work, you should get paid. One unique possibility is to ask clients to pay by ACH Debit, we all do it for expenditures like our credit cards, monthly mortgage payments, utility bills etc. At the end of the month just send the client an email with a PDF bill attached and then after an agreed to period, like 20 days, sweep the money from their bank account. There are much fewer accounts receivable issues and cash flow improves immediately.

Provide Partners with Information not Data. Law firms are guilty of providing partners with stacks of month end reports with tons of “data”. What the partners want to know is; so what?, what does this mean?, what should we do about it?, how does it affect us?. The CFO at the firm should make sure the information the partners receive is understood by the partners from a business point of view. Partners are attorneys, they too many times want to see all the details, all the reports, and do their own research, that’s what attorneys do. A smart law firm will boil all this down into summary format and provide the analysis up-front. A good Business Intelligence system with a data warehouse will help automate this process.

Provide Accrual Based Analysis not Just Cash Reports. Most firms in this country choose to operate on a cash basis, however cash basis reporting. See my story on cash vs. accrual accounting here. Beginning in 2012 start educating your partners on accrual basis reporting, show them a more clear picture of how the law firm is structured from a profitability point of view. There is more to law firm profitability than the current cash balance in your check book.

Reduce Risks. Rick management becomes a much more important topic as a firm grows geographically and diversifies into more areas of law. Why, because there is more room for errors that can be very embarrassing and costly. Conflict checking for business issues and adherence to federal laws may actually out-weigh some of the normal legal representation issues. For example, here is a story dealing with a potential new client embarrassment. Make you’re your firm isn’t caught up in a SDN violation, it could be very costly. Check this out.

Lower Internal Costs through Productivity Gains. This is so easy to say, yet a little more difficult to do. We’ll focus on improvements in just the quality of what you do, see this story on quality. There can be many more ways to improve productivity and lower costs, check this out.

I hope your firm enjoys a peaceful and happy new year.

 

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Categories: Best Practices, Financial Management, Law firm billing, Management, Productivity, The Legal Market

Tracking Work Location – A Taxing Issue

By on November 27, 2011

Law firms today have a very mobile workforce, attorneys who may work from home, and at one or more branch offices. At the same time cities and states are scratching for tax revenue to keep themselves afloat. It truly is a taxing problem.

 Here is an example of a potential issue:

The XYZ Law firm has an office in Philadelphia, PA and Cherry Hill, NJ (just across the river). Attorney Kevin lives in West Chester, PA (not part of Philadelphia) and has an office set-up in his home where he frequently works. Kevin spends 2 days a week in the Cherry Hill office, 2 days in the Philadelphia office and 1 day working from home. The firm shows that Kevin is “assigned” to the Cherry Hill office. On occasions he travels to Harrisburg, PA and spends the entire day on-site at his biggest client working on various matters.

 It’s now time to file tax forms, there are at least 4 tax entities involved at the city and state level. How does the firm decide how much revenue to report for:

Philadelphia – Business Privilege Tax (firm)

Philadelphia –City Wage Tax (attorney)

Commonwealth of PA – Corporate Tax (firm)

State of NJ–Corporate Tax (firm)

 Firms should track the actual “work location” on every attorney time entry. If the attorney is physical sitting in the Philadelphia office working on a matter, the work location is “Philadelphia”. Don’t confuse this with the “office” that the client or matter is assigned in the time and billing system. Many times the client or matter is assigned to the office of the billing attorney, or some other professional type. Revenue generated based on the Billing Attorney’s office may not be accurate enough to satisfy the tax collector.

 Preparing an analysis of time recorded and collected by work location, should satisfy any audit requirements. In most systems the work location code can be made a mandatory field for each time entry.

 (Disclaimer: I’m not an accountant, nor am I qualified to offer any tax advice whatsoever.)

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Categories: Best Practices, Financial Management, Law firm billing

Year-end Survival Guide for Law Firms

By on November 20, 2011

Law firms are quite unique, as compared to most other businesses; they normally choose to operate on a cash basis. Income isn’t earned, from a tax point of view, until that cash actually comes in the door.  In addition, expenses can’t be deducted until they are actually paid. Cash-in, cash-out that’s how law firms work. Even though smart firms might keep unbilled, accounts receivables and accounts payable on their balance sheet (accrual accounting) it really doesn’t factor into revenue or taxable income. One benefit of cash accounting is that income tax is deferred on accounts receivable, which may or may not be collectible. Law firms on a cash basis can do much more yearend maneuvering to manage the tax consequences of either the corporation or partnership.

 In a Slow Year – Ways to Increase Income

  • Of course, the best way to increase income is by billing more hours through November and collecting it all by December 31st. By this time of the year it’s a little late to expect work to be billed and collected.
  • Stop paying expenses probably has single biggest impact on income. Contact your vendors first so that they understand that November and December bills will be paid by mid-January.
  • Contact clients with large receivables, especially those that are old and risky and negotiate discounts for payment in December. Surprisingly, some companies have “use it or lose it” budgets and they just may want to get this liability off their books. Keep in mind that they operate on an accrual basis; it’s good to reduce liabilities for them.
  • Contact clients with large projects and see if you can get more upfront retainers, (not IOLTA payments). This additional cash will probably be calculated into taxable income.

 In a Good Year – Ways to Keep Taxes Down

  • Just the reverse of a slow year, one excellent way to keep taxes down is to pay forward 2012 expenses in December 2011. This doesn’t mean going on a buying spree. Many vendors would gladly bill2012 services and accept payment in early January. (Checks dated December 31st this year will reach them in early January).
  • One hidden expense that is sizeable in some firms is credit cards, go online and pay off all balances.
  • Make purchases in 2011 instead of 2012 for hardware and software that can be put into service pretty quickly. Only buy the items you were going to purchase in the upcoming year.
  • Contact some large clients and tell them you’ll delay November and December billings and instead bill them in early January for immediate payment. This might benefit the client since they are accrual basis, and if they receive a bill in 2011, it impacts their financials.  

 Beware of Pitfalls

  • Beware of the false sense of security that cash accounting provides. Many of the above suggestions have short term benefits with a potential longer term negative impact.
  • Drawing down the line of credit in a slow year-end, for any reason, is risky.

 Best Practice

Manage the firm day to day on an accrual basis. Accrual reporting provides cleaner snapshot of the health of the firm. Sure, you’ll compensate partners and pay taxes on a cash basis, but accrual will allow you to sleep at night knowing what tomorrow will look like.

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Categories: Best Practices, Financial Management, Law firm billing, Management

Win-Win AFA’s at Work – Stage Engagements

By on November 12, 2011

We are hearing from more and more firms, especially those doing insurance defense work, about how they have implemented an Alternative Fee Arrangement that seems to be a good compromise. We’ll call it Stage Engagements and it’s quite simple. A firm will take on a volume of matters from a carrier in trade for a fixed fee for various early stages of each case. Each stage has a start and end point, the end point is a “triggering event”. There can be multiple stages prior to outright litigation.

Here are some examples of triggering events:

  1. End of the “Presuit Period”.  This is a specific date, sometimes extended upon agreement of the lawyers.  But typically it is 90 days from the notice of intent.
  2. X dollars for all work up performed up to the first three depositions including plaintiff’s deposition.
  3. X dollars for work performed during the phase of trial preparation.
  4. X dollars for work performed during the initial discovery up to and including the plaintiff’s deposition.

 The Client Wins. Clients are looking for fixed price, especially in early case work. The early stages tend to be very low cost to the client and with a fixed price, outside counsel has no incentive to delay, or expand the scope of work required. Clients maintain the option of handing-off the case to another litigation firm if it deems the case if too complex or risky for the early-stage firm.

 The Firm Wins. Even though the firm doesn’t make a lot of money on the fixed price stages, it does position itself to inherit the case if an early settlement can’t be reached and the case goes to trial. As we all know, litigation scales up the value proposition and the billable hour normally rules. Furthermore, with the volume of work being acquired, firms can push the work down to the lowest practical level of competency, build best practices and use technology to keep internal costs down.

 Here are some tips to firms looking to take on Stage Engagements:

  1. The first key is to clearly identify what tasks are required in each Stage. Keep in mind that fixed scope = fixed fee. Any material “out of scope” tasks or turn of events requires a re-negotiation with the client.
  2. Normally a Stage isn’t billed until it is complete. Firms need to figure in the impact on cash flow when taking on a large number of new files. Also keep in mind that clients are taking 45-90 days to pay even under flat fee arrangements.
  3. Most modern legal billing systems will easily allow a firm to track all time entries in WIP for any Stage, and then simply bill them at a fixed fee amount. The timekeepers working on the matter get their utilization (hours billed) calculated based upon the fixed fee and see some sort of adjustment. More advanced systems might send an attorney a SmartAlert email when 90% of the budgeted fixed fee has been worked. SmartAlerts might also be sent to billing when a triggering event takes place from the Docketing system, notifying them it’s time to bill.
  4. Firms can run internal reports comparing profitability (or the lack of) on not just the Stages, but also on the entire matter if it goes beyond Stages and becomes hourly billable. The idea here is to look at the big picture, not just small chunks.
  5. Improving internal processes and lowering costs will give firms the inside track on their competition securing additional work, use this as a key component of your business development process.

 Fixed fee work doesn’t sound very innovative; however this Stage Engagement approach can be a simple win-win for both sides while we all invent a better set of AFA’s.

 Let me know what   you have experienced in Stage Engagements.

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Categories: AFA - alternative fee arrangement, Best Practices, Financial Management, Law firm billing, Management, The Legal Market

Collections – 6 Steps of Best Practices

By on October 2, 2011

I have written several blogs about the topic of Collections in a law firm. I even had a guest blogger from Lomurro, Davison, Eastman & Muñoz, P.A. talk about collecting payments. I have spoken about how software collections “wizards” can help organize and automate the process within the firm. But, how about the actual approach of collecting cash? There are many reasons why clients don’t pay bills; reasons ranging from cash flow worries to perceived bill discrepancies.  Here are a few tips and tricks to be the most effective and gracious “collector” as possible:

1. Wizards. Not to geek out on you here, but using a Collections “wizard” will ensure that you have crossed off all the “warning” options off the list.  Being informed – knowing what has already been done – is the first step to making sure you don’t embarrass yourself, catch someone off guard or risk losing a good client (if, in fact, they are).

2. Personalize. Although there are proven ways to collect from delinquent accounts, often taking into account the type of account and possible cash flow differences can help to get a client to pay. In other words, a small account with a large balance may be handled differently from a large account with a small balance. Sometimes asking a client how they’d like to pay is much better than just the “it’s overdue, pay now” approach.

3. Call. It is often tempting to hide behind letters and emails, but often hearing a human being’s legitimate (or not so legitimate) reason for the delinquency may shed some much-needed light on the subject and the firm may be able to work with the client on some sort of payment plan. This may also help to dispel the collector stereotype and humanize the situation. In addition, a phone call can often gauge whether an account was happy with the firm’s services. Often even corporate accounts can become evasive when it comes to service satisfaction. A phone call may help to get to the bottom of a client’s feelings and why they are avoiding payment.

4. Deal with the fact that you may actually lose the client. Albeit, it is a good thing to get rid of a bad client, but sometimes a good one will jump ship if they feel alienated. This is where good “strategory” comes into place. Try to sympathize with the good accounts and weed out the bad ones as needed. If a client is low on cash, try to empathize with them and work with them as much as you can.

5. Be specific. Make sure you have deadlines set in mind. General promises often fall to the wayside and will eventually frustrate both the collector and the client. When specific deadlines are set, no one can question whether something is late or not. These agreed to deadlines should be confirmed via email and automatically scheduled in the collections software for follow-up.

6. Ask. Be sure to ask clients if they are happy with your services on a regular basis. Giving clients an opportunity to voice their opinions – whether via a client satisfaction survey or even a simple follow-up email – helps to thwart any opportunity to take dissatisfaction out on an invoice. In addition, it makes for happy clients!

Whatever tactic your firm takes, be sure to always keep firm’s reputation in mind – word of mouth travels a long way! Good luck!

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Categories: Financial Management, Law firm billing, Management, Productivity
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