Archive for Law firm billing

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

Leveling the e-Billing Playing Field – Eliminate “Haircuts”

By on September 4, 2011

The e-billing battle plays itself out every day. Corporate clients and insurance carriers look to “enforce” their billing requirements and law firms look to get paid for work done even though it may not fully meet requirements. Lawyers would prefer to just practice law, but it’s just not that simple anymore.

As Mark Herrmann, Vice President and Chief Counsel – Litigation at Aon points out in his article “Inside Straight: The Truth Behind E-Billing”, clients have the benefit of using in-house computers to analyze e-bills more  efficiently, determine items that do not meet the rules and make short pay the firm. He states, “When clients make those adjustments in the world of e-bills, the law firms are typically able to press a button and print a report of the disallowed charges”. The client has the benefit, in many cases, of specially designed e-billing software that spin- through thousands of time and cost entries and kicks out entries that don’t conform to the billing rules.

In my experience, many firms do not have the option of “press a button and print a report of the disallowed charges”. They instead just accept a 2-5% “haircut” on e-bills as the costs of doing business. Till now firms just didn’t have a way of easily scanning hundreds or thousands of bills going out each month for compliance to client rules. It’s not that firms want to send out non-complying bills, it’s just too difficult to manage complex rules on a manual basis.

The solution, automated rules! Law firms can use newly introduced technology to electronically “scrub” bills before submitting them to clients. A flexible rules engine can, just like the clients in-house system, spin- through thousands of time and cost entries and kicks out entries that don’t conform to the billing rules.

Bill Scrubbing technology can level the e-billing playing field and allow firms to submit “clean bills” and eliminate “haircuts”.

 

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

Changing the Billing Paradigm – Parts 10 (Final): Cover Letters on Client Bills

By on July 24, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss idea of adding a cover letter to the front of a bill.

The idea of drafting a personalized cover letter and attaching it to the monthly bill is just outright misguided. What is the purpose of the cover letter? An attorney should be communicating with the client on a routine basis, the client should feel comfortable that they know what’s going on.

 The idea of sending a personalized cover letter with each bill does nothing more than slow up the billing process, cost the firm cash flow and may allow the attorney to think that he/she is actually communicating with the client. The fact is, that anything important the attorney needs to communicate to the client probably can’t be put in a general cover letter that passes through the accounts payable department in any case.

 The firm might be better off setting up a policy that says a billing attorney must call a client, on every final bill after a matter has closed or any bill over $xxxx dollars to explain it personally to the client.

 In summary, cover letters on bills really don’t serve the intended purpose and only delay the firm’s cash flow.

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

Changing the Billing Paradigm – Parts 9: Getting Bills to the Client.

By on July 17, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the issue getting the final bill to the client.

Here is how to improve cash flow and profitability by dealing with getting the bill to the client in the shortest possible time:

  1. The issue here is that the firm has done the work, incurred the hard costs and now wants to get paid. Unfortunately the firm can’t get paid until the client has had adequate time to process and pay the bill.
  2. Where possible, firms should try and get enough retainer in advance to cover the next month’s fees and costs. Therefore, there is never an accounts receivable.
  3. The second best option is to get the client to accept an emailed bill. Emailing a “pfd” copy of a bill is a major improvement in cash flow and profitability.
  4. Another option is to provide all client bills on a secured web site like greenlegalbills.com, send them an email with a link that will automatically take them to the site and allow them to download the bill themselves. Emailing bills is no longer a novelty, businesses are doing it everywhere. 

 In summary, the faster a client gets a bill  the better cash flow a firm will have,  and attempt to get all clients to accept email bills instead of paper copies.

 In the final post of this series will briefly discuss delays in the billing process due to personalized cover letters.

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

Changing the Billing Paradigm – Parts 6, 7 & 8: Dealing with the entire Pre-billing Process

By on July 10, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the issue of the entire pre-billing process.

 Here is how to improve cash flow and profitability by dealing with both the pre-bill process and the attorneys who review the pre-bills:

  1. The entire pre-bill review process is, quite frankly a poor process to start with. Why do you need to review a pre-bill, what are you looking for? Time entered against the wrong client/matter, time that can’t be billed, lousy narrative …. this is like taking every car off the production line and having to redo poor workmanship in the QA department.
  2. Should bills be reviewed, maybe the larger, more complex ones. If the billing attorney properly supervises work done on his/her matters, a complete pre-bill review should not be necessary.
  3. Pre-bill reviews should be done to match the continual billing throughout the month as covered in my earlier post.
  4. Print pre-bills on a slightly off color paper so that they are real easy to recognize on a crowded desk. .
  5. Set a pre-bill review deadline, for example 3 business days after delivery. Enforce this review time. Where possible allow secretaries to edit narrative for all pre-bill changes and accounting can do such things as adjustments and transfers. Maintain an ongoing list of all outstanding pre-bills by billing attorney, if they are late contact them or their secretaries and work out a timeframe for submission.

 In summary, getting pre-bills reviewed and ready for billing is the final critical step and sometimes the most costly one.

 In the next post we’ll look at finalizing bills and getting them to the clients, why is it a problem and what can you do to improve the process and become more profitable.

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

Changing the Billing Paradigm – Part 5: Dealing with Soft Costs.

By on July 4, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

 The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the issue of processing billable soft costs each month.

Here is how to improve cash flow and profitability by dealing with soft costs:

  1. Soft Cost items include such things as copies, faxes, phone calls and postage. Many clients no longer pay for soft costs, they assume that the billable rates charged by firms (should) include these office costs. When a partner is billing $500 – $1,000/hr. it’s almost embarrassing to ask for $0.20/copy.
  2. Charging for soft costs is highly unique to law firms, can you name another business that does this. Law firms would accept this from their vendors.
  3. So, what should a firm do to improve profitability? If your firm really deals in a lot of soft costs items negotiate a flat fee or % of fees as soft costs charges. For example, 2% of fees is deemed to cover all soft costs charges. You should first check with your state bar associations to see if this is acceptable.
  4. Getting rid of soft costs also saves money on all the “cost capture” equipment currently used in the firm and all the maintenance contracts, along with labor to download and process these costs.

 In summary, get rid of soft cost, negotiate rates with clients that will cover any revenue lost through these. Trust me, your clients will be happier when they don’t see an extra $100 attached to their bill for “office functions”.

 In the next post we’ll look at dealing with the entire pre-bill process, why is it a problem and what can you do to improve the process and become more profitable.

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

Changing the Billing Paradigm – Part 4: Dealing with attorneys who don’t have their time entered.

By on June 19, 2011

Law firms can improve cash flow and increase profitability if they improve their billing process and practices.

The client billing process, in many firms is based on a slow, painful monthly schedule. Why … because it’s always been that way. In part 1 of this series we identified the nine (9) current painful and costly steps to client billing. In this posting we’ll discuss the issue of chasing attorneys without their time entered.

 Here is how to improve cash flow and profitability by dealing with attorneys who habitually do not enter their time as required:

  1. The first step in dealing with late time is to have a firm wide, iron-clad policy identifying the “rules” for time entry. For example, time entry is required daily and absolutely no later than 9AM the following morning. If the firm is going to constantly bill clients through-out the month there can be no lag in time entry, there is no “monthly cut-off” date.
  2. Step two is to make sure that the senior partners themselves adhere to this rule, otherwise it’s just too hard to get everyone else on board. Even if the secretaries do the entries, at least they get done on time.
  3. At this point you can determine the problem with those that don’t adhere to the rules. They don’t adhere because they just don’t manage their time properly, or just feel that they are above the rules. I’ve heard all the excuses about how their work is too important, they are too busy, what their hourly rate is etc., everyone who is allowed to have an excuse has one.
  4. When an attorney doesn’t follows the rules have the partners deal with it, don’t push this off to the staff who will only be ignored.
  5. What about penalties, such as withholding paycheck or expense checks? First of all, withholding pay may itself be a legal issue, secondly, all this become just a game, how long can I last, who has more power? The fact is that certain occupations require prompt and accurate reporting, it comes with the job. A police officer needs to file a crime report, a surgeon needs to file a report after an operation, income taxes are due April 15th, court filings often have critical dates attached. The attorney just needs to have his/her time entered immediately upon completing the day.

 In summary, get buy-in from the top, stick to the rules and don’t accept excuses, everyone has one.

 In the next post we’ll look at dealing with soft costs, why is it a problem and what can you do to improve the process and become more profitable.

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