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Jeremy Diviney

How to Avoid and Prevent a Billing Dispute

November 16, 2017 By Jeremy Diviney 1 Comment

Nothing is more frustrating than realizing a client doesn’t intend to pay you after hours of hard legal work. What starts as a great relationship devolves into a petty dispute over money. Sometimes the amount is trivial, but the issue—left unresolved—can be big, tarnishing an otherwise professional relationship, even your sterling reputation.

Controlling client expectations is an art form: a nonstop balancing act of keeping clients and managing partners happy. It is something that is learned from experience, not in a law school classroom.

But seasoned attorneys counsel that prevention is worth far more than diplomacy. The best advice: Understand the root cause of client billing disputes, and then develop proactive strategies and procedures to avoid them in the first place.

 

Q: Why Don’t Sharks Attack Lawyers?*

*A: Professional courtesy.

At the heart of most “bad lawyer” jokes is a sad fact: Some clients are convinced that lawyers are less about truth and justice than they are about collecting exorbitant fees.

Great attorneys demonstrate excellence, not just with the law but even by the way they bill. Many experts recommend blending transparency, timeliness, and common sense when creating invoices to improve your chances of getting paid and retaining clients.

In an article in the July 2011 GPSolo eReport, Todd Scott, Vice President of Risk Management at Minnesota Lawyers Mutual, says that “the key to successfully recovering the firm’s net receivables is to take certain steps up front, at the start of the attorney-client relationship.”

 

First Things First: A Signed, Written Fee Agreement

Clients like to know exactly what they’re getting for their money, and that means you need to state as clearly as possible, in writing, your time-tracking and billing procedures before beginning any work on their case. If a dispute comes up later, you’ll have a written agreement that supports your case.

A written fee agreement—signed by you and your client—establishes the extent, and limits, of the attorney-client relationship, as well as the fee schedule. The agreement should state exactly the costs paid by the client. Clients are often astonished at the amount of out-of-pocket expenses incurred on their case. Identifying these costs (filing fees, expert witness fees, court costs, or photocopying charges) up front can prevent sticker shock when the invoice comes.

Having a signed fee agreement won’t mean much if your clients feel they’re facing unreasonable charges. Be sure to review ABA Model Rule of Professional Conduct 1.5: Fees when devising using your fee structure. It includes factors for local pricing standards, experience and skills of the attorney, the novelty and difficulty of the case, and how to determine whether the fee is fixed or contingent. For example, if your practice is relatively inexperienced, it’s unreasonable to charge the same hourly fees as a highly experienced and accomplished practice.

When quoting fees as a range, be realistic and competitive. But recognize that most clients “hear” the low end of the scale and ignore the high end. So, if the hours on a matter are heading beyond your original estimate, give a clear warning to the client. Don’t wait until after the fact, even if the causes of the overrun seem obvious. The client may not be happy (in the short run) but will appreciate your candor. Avoiding a surprise about fees demonstrates that you respect the client’s money and the professional relationship.

Here’s another good reason to be proactive: silence about work hours exceeding your original estimate is, to some, a tacit admission that the budget is on target. Some clients will argue that, despite the extra hours, they expected you to keep the original estimate because you gave them no warning.

This type of miscommunication and one-sided misunderstanding can lead to shorter client relationships.

 

The Goldilocks Strategy

Bills from attorneys can leave a client in the dark. Too much detail confuses clients and invites accusations of bill padding. Too little detail raises similar suspicions and may suggest a lack of internal controls or procedures. It is naive to expect the client to give your law firm the benefit of the doubt.

The correct approach is also a bit subjective: Provide sufficient details to explain tasks, but no more. Billing details should be used strategically to address a client’s unspoken questions:

  • Why was this charge necessary?
  • What was accomplished or how did this help my case?

Of course, attorneys should scrutinize invoices before sending them out to ensure that the bill reflects the accurate hours for the matter. But before you apply a stamp to the envelope (or press “send” in your e-mail), step back and try to observe if you applied common sense:

  • Was the legal work handled by as few attorneys as possible, with a clear separation of work divisions to avoid overlap or duplication?
  • Did your firm utilize the least expensive, most appropriate biller for each particular task?
  • When billing large matters, does the description show a breakdown into subparts that are more easily understood?

Try to write descriptions without complex legalese. In fact, consider establishing parenthetical definitions of common legal terms in your software’s billing task descriptions. Clients should not be challenged to interpret an attorney bill or left trying to decipher abbreviations and acronyms.

When you perform a service without charging the client, be sure to put that task in the invoice with a $0.00 charge. The client may not appreciate your largess unless he or she knows about it! Just be careful to avoid giving away too much so clients don’t get too accustomed to the practice.

If you have a case that requires legal or nonlegal outsourcing, include similarly detailed descriptions. Clients may think that your use of third parties indicates your inability to provide adequate representation, so you may want to emphasize the reasons for seeking counsel or resources outside your own firm. And make sure you cover third-party resources and outside counsel in your written fee agreement.

Bill blocking, the practice of summarizing a list of tasks in a group for a certain amount of time, is a bad strategy. Many courts reject the practice because it makes attorney fee reimbursement difficult following a judgment. Instead, every time-tracking and billing invoice should reflect each independent task, itemized separately, with the time involved.

 

Submit Invoices on Time

Unfortunately, some clients consider a submitted invoice to be the start of a negotiation. To put your firm in the best possible position, get in the habit of promptly sending your invoice as soon as practical.

First, be sure you master your time-and-billing software so you can quickly scrutinize, edit, and then issue invoices without delay. Any capable time-and-billing software should have the ability to quickly adjust time entries and billing details to suit the reality of client relationships.

Prompt invoicing with sound descriptions sends a powerful signal to a client: We have a solid handle on the details of your case and the work performed. This demonstrates your administrative staff knows its job. It signals an air of invincibility and inevitability, making it somewhat less likely for a client to raise an objection.

Invoicing promptly also creates an impression of thoroughness for your firm. It’s another way to market your firm’s professionalism to your clients.

Think about the impression left with the opposite situation: a one-page invoice, with vague billing details, received months after a matter concludes. Clients get annoyed in this scenario and sense an opportunity to dispute charges. They perceive (unfairly or not) that your lack of timeliness indicates a lack of attention to detail or inaccuracy. It’s a chink in the armor that you should avoid.

 

When Clients Are Late, Be Direct

When a client is late paying your bill, it’s important to be clear and direct about your expectations. Many clients believe that lawyers are rich enough to weather a missed payment, so they will decide to pay other bills before they pay your firm. If this is a problem for your practice, let the client know directly that you expect payment from them according to your accurate time tracking and billing.

Unfortunately, your firm may not be able to avoid losing a client if you’re convinced that they won’t pay. Jay Foonberg, a best-selling author for the ABA, says, “If you’re going to get burned, get burned cheap.” If you have new clients who are missing payments but requires a lot more work on their case, make sure you’re confident that they will eventually pay before proceeding with their case.

 

Tips for Flat-Fee Arrangements

Flat-fee arrangements are becoming more common with law practices, but smart attorneys avoid verbal flat-fee agreements, which almost always lead to confusion and disappointment.

If you plan to charge a flat fee, write out the work your firm plans to do in clear language and make sure you fulfill those obligations. Clients are sensitive to excessive charges and padding, so avoid details such as:

  • specific time amounts to complete tasks;
  • staffing levels, especially the type and duration of resources; and
  • non-refundable, up-front fees.

Although legal time-and-billing software is designed primarily for hourly billing, it can also be useful in flat-fee billing situations. For example, most flat-fee arrangements have a well-established hourly labor component. When you track your time based on matter type using time-and-billing software, you can identify tasks that would make good candidates for a flat-fee service. Once you establish an internal benchmark for your hours, you can use your time-and-billing software to confirm your actual hours versus the hours “budget” implied by the flat fee. This helps maintain your firm’s overall profitability for flat-fee matters.

 

Conclusion

Attorneys can eliminate many fee disputes by practicing the above strategies. Not only are properly prepared invoices using quality law firm billing software great communication tools, they inspire confidence and loyalty.

 

A previous version of this article appeared in the

American Bar Association’s GPSolo eReport, September 2017.

Filed Under: Blog, Legal, Running Your Business

Future Proof Your Law Firm

June 28, 2017 By Jeremy Diviney 1 Comment

Your future as a lawyer doesn’t depend upon technology. Great client relationships, effective representation, and sound advice will trump fancy gadgets or complex software every time. In fact, clients are rarely impressed by technology unless they see an immediate benefit to their own needs.

That said, your firm’s financial success often depends on your ability to use technology in pursuit of lowering costs, reducing waste, and avoiding unneeded expenses. Understanding how and when to use emerging legal technology is as important as keeping current in case law.

What Do Clients Want?

As a rule, efficiency is vital to clients, even if they never say so. Any consultant or highly skilled lawyer comes at a high price. It is rare that a client looks for ways to pay more!

For client-facing technology (such as shared communications, billing portals), you need to stay proactive by explaining how the efficiency improvements you’ve made with technology will benefit your client. Many technologies promise labor savings, which can mean a reduction in billable hours. In the short term, good for the client, not so great for you.

However, you should be playing the long game – building solid client relationships, not monthly revenues. It is impressive that you’re willing to sacrifice a few billable hours through efficiencies to gain a long-term, committed client. If you don’t adopt obvious labor-savings efficiencies in your own firm, you are more likely to lose a client to a rival firm that made the switch.

Of course, not all labor savings need to be shared with clients. A good source of firm profitability comes from reducing non-billable labor and maximizing productivity. The ability to accept greater caseloads without an increase in administrative overhead is powerful operational leverage.

Below are several new and emerging technological solutions for your law practice. Some will improve your efficiency behind the scenes, while others will give clients immediate tangible value.

Time, Billing, and Case Management Software

Any given case can involve numerous documents, contacts, appointments, and billing information. Having one place to store and retrieve that data is an invaluable behind-the-scenes asset for your firm. With case management software, you have the choice between using a web-based or in-house server solution.

Cloud technology has come a long way in recent years, and it has many advantages for small firms who don’t want to run their own servers. Some legal time & billing solutions, like Bill4Time, offer 256-bit bank-grade security, 5-minute setup, full trust accounting functions, integration with on-line storage services (like Box.com), plus an online payment portal that can accept credit cards and ACH transactions.

Other cloud-based systems promise complete practice management software. This comprehensive approach can be powerful for your firm, but it requires a deep commitment and sustained effort to change virtually every aspect of your practice. Some firms find the challenge a bit too much and revert back to old ways.

Legal Research

Cloud-based companies can also provide automated research capabilities that can save your firm serious dollars. Automatic PACER tracking through CaseFlex could be useful if you file federal cases. Services like Witnex promise thousands of qualified expert witness profiles on a single database. Judicata is an enhanced legal search engine that delivers query results that are designed to be “precise, contextual, and comprehensive.”

Online Communication

Lawyer availability (or timely response) is one of the most important value considerations when clients evaluate a firm. Whether it’s by email, text, or chat, most clients will want to get in touch with you by means other than telephone. Your clients are likely already using secure chat platforms like Slack or encrypted email platforms like Virtru. Keep in mind that there are pros and cons of team communication apps like Slack.

Document Automation

There are better uses of the time and energy of your support staff than drafting legal documents over and over again. Standard templates for living trusts, copyrights, LLC formations, and other documentation, can be accessed through a cloud-based database from companies like Docasaurus, saving you time and money behind the scenes. iManage provides seamless management of your sensitive documents, and Intapp automates document confidentiality through a single interface.

Technology Support

Neither courts or clients care about excuses for broken technology, so you need to have an expert available at all times to fix problems with your firm’s computers and other tech when issues arise. If your firm is large enough, you may be able to justify a full-time IT person, but most smaller firms will need to work with companies like Dataprise or Synoptek.

Digital Security

Even if you run a small practice, information about your clients and cases has value to criminals. Even if you use cloud-based case management software, the devices you use to access the web need their own security. This means you need to install and consistently update anti-virus software like AVG, anti-malware apps like Malwarebytes, and firewall hardware like WatchGuard.

Legal Labor On Demand

Just like Lyft can connect passengers with available drivers, sites like CallRuby can connect law firms with on-demand labor quickly and easily. Let’s say everyone at your office is busy working on a case and your secretary calls in sick, you can make sure your calls get answered by requesting help through a website or mobile app. Ensuring your office has an available friendly voice will engender trust with your clients.

People benefit from technology in many aspects of their lives already, so they will expect your law firm to take advantage of advances whenever possible to improve their experience. Your first step should be to speak with clients about any value issues they may be having, as well as their relative comfort level with technology integration with 3rd-party partners. The tech you choose for your firm should clearly provide value to the client, not just your own firm.

 

Jeremy Diviney is President and co-founder of Bill4Time, web-based time billing software serving both small and large professional services firms. With offices in New York, Seattle, and Pittsburgh, Bill4Time creates simple-to-use, intuitive and user-friendly software.

Try Bill4Time for free.

Filed Under: Blog, Legal, Running Your Business

The Business of Effective Timekeeping

February 6, 2017 By Jeremy Diviney Leave a Comment

Today, successful law firm owners have to start thinking less like lawyers and more like business owners. These leaders are looking beyond billable hours, implementing business practices and metrics to increase time-billing productivity and the bottom line.

Why You Should Measure Utilization Rates, Not Just Billable Hours
The utilization rate is the measurement law firms use to assess staff productivity. Every lawyer has a capacity for hours worked but utilization rate is a measure of how much time is actually spent on work that is billable to clients.

Utilization rate is calculated by dividing a lawyer’s billable hours by the lawyer’s maximum capacity of hours to work. So, if a lawyer works 2,500 hours in a year and bills 1,800 hours, her utilization rate for the year is 72 percent. While this sounds like a reasonable example, recent studies indicate that utilization rates may actually be much lower, especially at smaller firms. One industry study found that only 20% of time worked is actually being billed in the solo and two-attorney practices.

Billable hours should be evaluated in the context of utilization rate to compare employees, clients and overall firm performance.

What are the main causes of low utilization rates? Fifty percent of respondents (both big and small firms) in the industry survey found administrative and practice management tasks as the number one or two activities making up the bulk of non-billable work hours. Another consideration: attorneys may not be sufficiently recording and capturing their billable time.

One universal truth: lawyers gripe about filling out time sheets. “Many lawyers today just do not understand the impact of effective time keeping on the firm’s business,” notes Aileen Leventon, Principal of Edge International, a law firm consulting firm.

Increasingly, however, law firms are taking another look at time keeping, from management practices that encourage greater and faster compliance with time keeping tasks, to making staffing and expansion decisions based (in part) on time sheet data.

Make Timekeeping Relevant
Most law firms’ compensation structures are linked not to profits but revenues (explaining the need for more billable hours). Law firms generally do not have a strong handle on the costs of underlying legal work (or costs of working on specific clients or matters). This is a backward-looking focus that needs to change, says Leventon. “There’s nothing wrong with billing by the hour but you want to make sure everyone is productive. If everyone is only focused on how many hours they are billing, they are only looking at one part of the business equation.”

Effectively tracking time is the only way to understand the “cost of the sale” to a law firm. Leventon explains that if you spent 100 hours on a client but were only able to bill 10 hours, you have to evaluate whether this is a good use of firm time. You have to evaluate how you spent the other 90 hours. Was it business development, a write off or something else? Lawyers need to understand the relationship between revenues vs. costs. Lawyers also need to understand the value of keeping timely, detailed information and how it will ultimately impact their own compensation. “If lawyers are not compensated on their contribution to profitability, you can’t change their behavior.”

Using Time Data to Make Smart Business Decisions
“Timekeeping can be a useful tool when you are at a critical point with your business,” added Leventon. “Lawyers often take on all the cases they can and then decide whether or not to hire. When you feel you are at a break point, you can look at your data. Timekeeping data is invaluable when you are making business decisions about your firm.”

This point goes back to importance of accurate utilization rates. Leventon notes that looking at timekeeping helps firms determine whose time is frequently being written off or who does not have enough work. This information can help firms decide whether or not to hire and can also help assess staff performance.

With profit-level analysis, lawyers can answer tough questions like ‘do I need more people, or do I simply need more efficiency from my current staff? Do I need to raise rates, or should I just get rid of one unprofitable client.

Analyzing time billing records also lets firms strategically decide when (or if) to suggest flat-fees on certain routine tasks or transactions. Even when a client is not pushing for alternate fee arrangements, recognizing that fixed fees for certain routine services or matters can be more profitable and could result in a win-win.

“You can’t run your law firm like a business unless you are on top of your timekeeping. The whole house of cards falls if lawyers do not enter their time sheets in real time,” noted Leventon. 

Filed Under: Blog, Running Your Business, Small Business, Time Management

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