First Person: The Art of Billing
By Michael Simmons
We are told that billing clients is a science. Don’t believe it. How much, and when, to bill clients has always been an art. The accountants have held sway for a number of years and translated what was nothing more than a management tool— costs-expenses per hour—into the hourly billing rate.
If ever there was a blunt instrument, this is it: The hourly rate rewards the slow and stodgy, while penalizing the fast and perceptive. If I take ten hours on a job that should have taken one and can get away with it, I am a success. If I solve the client’s problem with a flash of inspiration, I penalize myself by slavishly following the hourly rate system.
If my normal time for doing a particular job is one hour, but I happen to have a hangover that day and take three hours, how many hours do I charge to the client? I do not say that the hourly rate does not have its place in certain types of billing, such as when it is not reasonably possible to estimate the time that a job will take, and there is no particular importance in the outcome. The hourly rate can be well employed in parts of bills—for example, discovery in litigation, where it is impossible at the outset to estimate what resources will be needed to complete the task.
But There Has to Be a Better Way
Before the economists took over and scale fees were determined to be uncompetitive, there were fees for many types of work that were predicated on the value of the transaction. They at least provided certainty for the client, and they were normally based on a great deal of in-depth experience. Now e can all compete madly and watch the feathers fly. Do the clients, however, benefit?
My principal when I was training used the "reasoned judgment" method. He would weigh the file in his hand with eyes shut tight and then produce a figure. Who can say that he was wrong?
In Anglo-Saxon based litigation, the tendency is to seek to make the lawyer share the client’s risk. This makes us business partners with our clients and reduces our professional detachment. It certainly makes us more aware in estimating the likely costs to us of the work. Too many failures can result in our bankruptcy.
A whole new raft of alternative billing methods has now been hatched. These include the blended hourly rate, the contingency (or success) fee, the reduced contingency fee coupled with a lowered hourly rate, fixed fees and all or any combination of these—a veritable cocktail.
The ultimate shift is to value billing, but whose value? If it is the lawyer’s, the chances are that he or she will get it wrong. Value needs to be perceived through the client’s eyes. Not any old client, but this particular client.
We Have Our Limits, and Our Hope
Putting out bills that clients rush to pay requires judgment and sensitivity in the extreme. No lawyer will have these virtues every day. As a profession, we are remarkably insecure, and the best of us are the most insecure of the pack. We may go to work on Monday full of confidence in our own superb abilities. Odds are that we will overbill that day. The next day, three perceived bad things may happen to us and we will be assailed with doubt. We will underestimate the value of our services and underbill accordingly. The best hope is that our errors will be within limited parameters, and we will still get it right more often than not on the swings-and-roundabouts principle.
It is, of course, best to test the final amount of the bill against not only what it costs us, but also against our notion of charge-out rates. Many of us are too scared or too arrogant to do so, but it is a good idea to try to agree on the bill with the client in advance, a practice that often leads to satisfied clients. And you may even receive praise for the work you did.
Bill regularly and at times when the client is most likely to pay. I said that billing was an art, so keep the accountants where they belong—in the back office.
Michael Simmons (email@example.com) is a partner in Finers Stephens Innocent of London and a consultant on professional practice problems.