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May/June 2020

Practice Management Advice

Billing Policy: The Humdrum Profitability Conundrum

John D. Bowers

From a purely objective view, financial whizzes must be able to gauge the next couple of months of performance with a few simple reports: work in process, fees billed and accounts receivable. At their simplest state, these metrics reveal what has been entered for billing, what clients have been asked to pay and outstanding balances due to the practice, respectively. Law practice leaders can then spend a few minutes analyzing these results and draw basic conclusions about both productivity and financial projections. It is all very simple, since numbers don’t lie … right?

The truth is that you must maintain a consistent billing policy since financial figures can become anything but objective in practice. Frequently when life happens, the balance rightfully shifts from work. Occasionally, nonbillable effort that genuinely benefits the firm crowds out time spent on client work. And often, massive projects roll in and timekeepers steeped in the appearance of busyness can’t be bothered to bill for the “genius” work they’re churning out.

Thus, your practice’s culture drives your employees’ behavior. What are you willing to tolerate? Make no mistake: If the productivity goals of your practice are not clearly defined, they simply will not be met. Hone the following pronouncements to complement your firm’s culture, craft a comprehensive policy and then collaborate with stakeholders to set your practice up for financial and productivity success. Once consensus is gained, communicate your policy repeatedly and widely while accepting feedback, even criticism. However, be ye resolute:

The best practices encouraged by such policy play directly into your profitability.

Reap What You Sow

In order to measure acceptable effort, you must quantify minimum requirements. Irony alert: Though the billable hour in 0.1-hour increments is generally detested, the format remains broadly used. Most small to midsized law firms don’t mandate annual hourly billing targets that each timekeeper bill 2,200 hours, although that is not unheard of at large firms. Many firms set the mark typically between 1,500 and 2,000 hours. This certainly is one instance where your practice’s culture comes into play.

Though some practices have shifted to alternative fee arrangements as a routine, measuring revenue projections is still important. Since each such project should have an engagement letter outlining the fee arrangement, what is the total of those ongoing matters? It is imperative that attorneys working on these projects, from fixed fee arrangements to contingency work, also track their time to avoid both excessive inefficiencies and opportunity costs of not working on other projects. Time is still limited, after all.

Do Unto Others

If lawyers quake at the “R” word (as in “risk), they simply cannot abide the “A” word (as in “accountability”). Some consultants peg 30 percent as the proportion of time lost (not even entered in the billing system) if billable hours are not entered contemporaneously. As such there is no question that, for the good of the firm, accountability must be hardwired into your policy. Such standards mean that all time should be entered within 24 hours of when the work is performed or by 10:00 a.m. the next business day.

Open communication of productivity on a regular basis helps to lend both accountability and transparency. This is ideally achieved through monthly reports distributed to all timekeepers of each timekeeper’s hours entered and fees billed for the preceding month. The benefit of transparency is that it affords a month-to-month gauge for employees to benchmark their own performance against the productivity goals previously communicated.

Of course, accountability all but evaporates when leaders fail to set an example of following the policies to the letter of the law. No one loves to be reminded of this fact, but the “do as I say, not as I do” behavior substantially injures employee retention while stunting new practice growth.

Ask Not, Receive Not

Your utility company would be hard-pressed to collect fees from you if it didn’t notify you of the balance due. The law is more rarefied, though: Some lawyers simply hope they are above needing to ask their clients to pay them. In 20 years, I’ve never seen any clients willing to remit payment on a wish and a prayer. So why the monthly struggle to invoice clients? Be sure to set clear billing expectations, including:

  • Cutoffs for time entry, whether that means time posted or released in your financial system.
  • Monthly billing deadlines—regular dates by when all invoices must be sent out.
  • Maximum discounts (writing down time entered prior to billing the client) a billing attorney can offer without management approval.
  • Mandate that each billing attorney explain to working attorneys why their time entered isn’t billed to clients (if that is the case) prior to the time the client gets the invoice.

Getting granular in the policy planning stage will head off sentiments such as, “Who cares if my time is timely entered if it’s constantly and significantly being written down?”

Blessing or Curse?

Even large firms with multiple billing clerks fight weekly or monthly battles on time entry and sending bills out. Beware dangling an unnecessary carrot before those who simply need to do their job. A $25 Starbucks card may continue to motivate rule followers to comply with policy, but they weren’t the problems in the first place.

Since partners drawing equity don’t get paid when work isn’t billed or clients don’t pay, they have vested interest in who isn’t following policy. Some law practices withhold paychecks for billing attorneys (including partners) who don’t send their invoices out by the billing deadline; it is particularly convenient when the billing deadline and payday are the 15th of the month. At some point it will be necessary to note that violation of your policy will result in disciplinary action, up to and including termination.

‘Come to Jesus’

You’ve seen it: Blatant disregard for firm policy sends managers into tailspins of hand-wringing indecision. The longer insolent behavior persists, the more profitability is impacted—your partners are drawing less capital. When the bleeding becomes unbearable, someone must confront the offenders with hard numbers and specific instances of noncompliance.

Leaders are willing to show these timekeepers the door before much collateral damage is done. Take heart, oh ye courageous: Action against the worst offenders is usually instrumental in offering redemption to those on the brink. If not, there are always other law practices in town willing to add another shiny new lawyer to the firm head count.

John D. Bowers


John D. Bowers is the chief operating officer at Patterson Intellectual Property Law, PC in Nashville, Tennessee. He also serves as executive director of the Tennessee Intellectual Property Law Association, is the treasurer of the Middle Tennessee Chapter of the Association of Legal Administrators, and is a former editor-in-chief of Law Practice and continues to serve on its editorial board.