The Ultimate Guide to Legal Billing (and Checklist)
Navigating the intricacies of the legal system is challenging enough, but ensuring that the billing process runs smoothly is an art in itself. It requires precision, organization, and meticulous attention to detail.
But what do you do when it feels like one (or two or three) of those traits are missing from your billing process?
The answer begins by understanding all the parts contributing to the whole. Then adopting a comprehensive approach that scrutinizes each component meticulously.
To build an effective legal billing process, you must first identify and understand the challenges you face. Then, you can devise strategies to overcome them. The checklist at the end of this article will serve as a practical guide to help you avoid these challenges in your process.
What Is Legal Billing?
Legal billing is a comprehensive process in which law firms log, calculate, and bill clients for the legal services provided. It involves generating invoices to bill clients accurately and promptly using various pricing models, such as hourly rates, flat fees, and contingency fees.
Legal billing is an important part of a legal practice because it directly impacts a firm’s revenue, client relationships, and workflow:
- Client trust and satisfaction: Transparent and accurate billing establishes a strong foundation of trust between clients and law firms.
- Operational efficiency: An efficient legal billing process streamlines workflows and reduces administrative hassles.
- Cash flow management: Consistent and timely billing ensures a steady influx of revenue, which is essential for the financial health of a law firm.
- Accountability and compliance: Legal billing ensures the firm upholds industry standards and client agreements.
- Dispute reduction: Accurate and detailed invoices decrease the chances of payment disagreements.
From the initial client intake to finalizing payment plans, every step is crucial to the firm’s profitability and success.
Common Legal Billing Challenges for In-House Legal Departments
In-house legal departments often face unique challenges when it comes to legal billing. These in-house teams are deeply connected to the company, handling both external legal matters and internal finances and operations. Here are some of the common pain points they encounter.
Inaccurate Time Tracking
In an industry defined by billable hours, it’s essential to make sure your teams are promptly and accurately tracking their time. This includes every timekeeper or employee working on the matter. But, without the right tools, tracking time accurately can be tricky. This might result in billing errors, undercharging for services, or even overcharging.
Solution: Modern legal billing software offers precise and efficient timekeeping features. These cloud-based tools track billable hours in real-time, ensuring no time goes unlogged. This ensures that every minute spent on a case is accounted for and increases profitability. Moreover, integration with matter management reduces the manual labor of matching hours to cases.
Lack of Standardization and Automation
Many in-house legal teams are bogged down by old-school billing methods. Why? Because many of them still rely on manual data entry. This method not only consumes valuable time but also leaves room for various errors, such as duplication, omission, or misallocation of billable items.
If a team doesn’t have a shared method of billing, each team member will go about it in their way. Some might jot down hours on paper, while others might use a third-party software solution. This mixing and matching of methods can lead to different billing formats, time-tracking methods, and even pricing strategies.
Solution: Legal billing software can be used to standardize and automate routine tasks. For example, billing templates streamline invoice generation and simplify the billing process. This ensures that all team members follow the same billing structure, eliminating discrepancies. It also ensures consistency across the billing process. Additionally, automation reduces errors by minimizing manual data entry.
Lack of Visibility into the Billing Process
Navigating the billing process can sometimes feel like wandering in the dark for in-house legal teams. They often can’t fully see what’s going on, making it a challenge to keep track of everything accurately. Without a clear view of the entire billing cycle, important details can easily slip through the cracks.
For example, it can be difficult to determine how much time was spent on a specific project or to identify any inefficiencies in the billing process without proper tracking. And without visibility into the billing process, it can be difficult to ensure that the legal team is staying within budget.
Mistakes in billing can ripple out to affect client satisfaction. If a client gets a bill that doesn’t make sense or seems off, it can lead to disputes and hold up payments. This only adds more stress to the legal team’s financial balance and planning.
Solution: Having an all-in-one legal billing software that integrates seamlessly with other systems drastically improves the visibility of the entire expense tracking and billing process. This kind of billing solution brings everything into the open, allowing for real-time tracking of all billable actions, complete with detailed breakdowns of the services, pricing, and disbursements. Automatic alerts for upcoming or late payments can also be set up to ensure timely collections and a smoother cash flow for the firm.
Having a unified platform means that the legal team, finance department, and even the clients can have a consistent view of all billing-related activities. This transparency fosters better communication and trust among all parties involved.
Complex Billing Guidelines
Complex billing guidelines are a major hurdle for many in-house legal departments. These guidelines, often set by clients or the company, detail how legal services should be billed. They can range from the types of tasks that are billable to the specific format in which invoices should be presented.
For example, while some clients might have limitations on what activities are billable, others could impose a ceiling on the charges for particular services. This gets even trickier when juggling multiple clients or projects, each with its unique set of billing rules. Meeting all of these individual stipulations can be a tall order, and failing to do so might lead to delayed payments or even upset clients.
Solution: Advanced legal billing software can be programmed to understand the specific requirements of each client or project. With automated checks in place, invoices can be generated that are in full compliance with the set guidelines, reducing the chance of errors.
Thanks to modern cloud-based systems, any changes to the billing rules can be shared instantly, guaranteeing everyone on the team has access to the most up-to-date info. This not only makes the billing process more efficient but also fosters consistency and accuracy across the board.
Checklist for an Effective Legal Billing Process
Now that you know the challenges and solutions surrounding legal billing, ensure your in-house legal team is equipped to tackle this head-on. Regardless of the exact tools you prefer to use, here are all of the must-have requirements for an effective legal billing process.
Client Billing Responsibilities
To ensure accurate and organized billing, clients should have a set of standard operating procedures in place.
1. Define Clear Billing Guidelines
The first step is establishing a concrete set of rules for your law firms to reference. Without these written expectations, you’ll be inviting non-compliant fees that create frustration and disruption for both your organization and your outside counsel law firms.
As for distribution, a centralized storage location for your billing guidelines will ensure quick and easy access. You and your team won’t have to spend time replying to email requests from each individual collaborator.
You should also routinely review your billing guidelines for accuracy and relevance. Proactively alert your law firms of any updates or adjustments. This will preserve the clarity they need to submit correct and compliant invoices on the first attempt.
Need better billing guidelines? Check out our free sample outside counsel billing guidelines.
2. Establish an Efficient Invoice Review
Reviewing and approving invoices is commonly the most time-consuming phase of the legal billing process. When tasked with balancing both speed and accuracy, most departments will understandably err on the side of diligent cost control. The good news is those two objectives are no longer mutually exclusive.
By graduating beyond manual processing and embracing technology-assisted review, savvy teams are now significantly shortening their billing cycles. The best (and easiest) way to do this is to automate your invoice review and approval process using an AI-powered legal spend management tool. Instead of assigning staff to read each and every line item description, automated legal software can now rapidly identify the few issues that truly deserve human attention.
3. Ensure Easy Integration with Finance
Approved invoices don’t become bank account balances until they pass through accounts payable. Linking closely with your finance team will help limit the transition time between those two states.
Keeping colleagues in the loop on budgets and forecasts will ensure your invoices get paid on time. Proactive planning and accruals management will also help as they give both legal and finance much-needed visibility into potential challenges. This, in turn, allows them to flag issues before they have a chance to wreak havoc on the billing process.
4. Create Formal Resolution Plans
Even the most precise billing processes will eventually be stretched by the variety and complexity of legal services. So when issues inevitably arise, you’ll want a plan in place on how to deal with rejected invoices and conflicting opinions.
If your law firms are consistently submitting non-compliant invoices for legal services, some extra education may be needed to resolve their confusion. On the other hand, if outside counsel introduces a valid billing scenario your guidelines have not yet accounted for, you’ll want to be responsive to that as well. Continuously improving your billing guidelines and addressing your law firms’ concerns will show your humility as a fair business partner while simultaneously solving future debates before they arise.
These social dynamics are easy to overlook when outlining legal billing strategies, but they often turn out to be surprisingly impactful. Perhaps the most efficient way to preserve positive relations is to appoint a mediator within the law firm who can give you matter and invoice updates as they emerge.
Law Firm Billing Responsibilities
Law firms also need a solid set of procedures and guidelines. Follow this approach to ensure your law firms’ billing responsibilities are up to the mark.
1. Establish Reliable Time Tracking
The general rule of thumb for lawyers is to bill for approximately 70% of their total worked time. While this may be the commonly accepted practice, the billing guidelines you create are ultimately the most objective point of reference for you and your law firms. So make sure your instructions address the timing as well as the nature of the legal services provided.
2. Stay on Top of Billing Guidelines
Once you have detailed and distributed clear billing expectations, it’s up to your law firms to uphold their end of the bargain. If your law firms are repeatedly including non-compliant fees in their invoices, that’s a strong signal that your documentation has not been sent to or internalized by everyone in the firm.
Your appointed law firm contact should have ensured that everyone working on the matter was made familiar with the billing guidelines. So be sure to flag it with them as soon as possible to avoid any further breaches.
3. Have Informative Invoice Descriptions
Nobody wants to review needlessly lengthy narratives. But you also don’t want your law firms to withhold information that could be important. Any ambiguous descriptions within your invoices will disrupt your approval workflow since your law firm will then need to clarify what they actually mean.
The trick is to make sure the invoices you receive are concise yet sufficiently detailed. Work with your law firms to gradually find the right balance so they can create invoices that will encourage efficiency, not hinder it. (This is one variable they definitely can control when it comes to accelerating time-to-payment.)
4. Ensure Timely Invoice Submissions
You can’t pay an invoice you haven’t yet received. While this may sound obvious, law firm billing behavior sometimes suggests that it’s not. Make sure your law firms stick to a billing schedule so you can pay your invoices within the agreed timeframe.
Your law firms should also be submitting their accruals on time. Those accruals must be accurate to allow for a more efficient billing process.
Technology Is the Key to Optimizing Legal Billing
AI-backed legal billing software will help you simplify, streamline, and bring clarity to any complex billing process. Whether it’s time tracking or invoice generation, these tools are indispensable.
With Brightflag’s e-billing platform, you can:
- Enhance the rapport between your legal and finance departments.
- Obtain a comprehensive view of each cost item.
- Take advantage of opportunities to save costs.
- Manage your legal operations in a business-focused manner.
Learn more about Brightflag’s automated legal invoice review solution, or schedule a demo now to explore these features!