Opinions and Legal Insights

Why Out-Sourcing Your Law Firm’s Billing is Bad for Business Operations

As a practicing attorney you are constantly juggling your client caseload and utilizing your lawyering skills to win cases, which is what you were schooled to do.

And now as Senior Partner you have been asked to take on the role and responsibility of Managing Partner. With the role of Managing Partner comes an entire list of new requirements for managing business operations, which we all know is not something normally taught in law school.

As you digest and roll-up your sleeves with this added responsibility, your first thought is to analyze and change everything, get key employees involved, figure out what is not working efficiently, and instantly put your firm administrator in a tail-spin with all the procedural questions.

Historically, when law firms resist change it is due to legacy partners and long-term employees who have set up the processes and cannot embrace changes in technology, fear learning curves, or accept the way of modern law firms as a virtual environment.

Your law firm has been in business for years and although everything may seem to be working because client invoices are going out and money is coming in, your knowledge of advanced legal technology and the dream to become known as a “boutique” law firm beg to disagree.

True to the old adage, “if it isn’t broken, why fix it,” no one has taken on the responsibility to analyze procedures, evaluate solutions, or recommend change until now. However in the meantime, employees are constantly grumbling under their breath, “there has to be a better way”.

As Managing Partner, where do you begin reviewing current processes to ensure your law firm is being managed efficiently and running at optimum performance?

First, a full analysis of processes and procedures in all departments must be done to confirm the workflows are in place to give employees the tools to keep up with client demands.  This may involve reviewing your firm’s Practice Management Solutions and IT technology requirements.

Your first stop in your workflow review is the accounting department, where you learn that the firm’s time entry, billing, invoicing, accounting, and financial reporting tasks are all outsourced.

You determine the average turn-around time to get invoices out the door at month-end is 7 to 10 days.  And, that does not even include the day-to-day hourly rate your firm is paying for someone unfamiliar with your client names to enter unreadable hand-written timesheets.

You discuss billing processes with other Managing Partners in your network.  You ask what’s been working in their firm and learn they keep the billing cycle in-house with strict procedures in place to monitor and manage billable and administrative time.

You further learn in their firms each attorney is responsible for entering their client billing and have sophisticated Practice Management Solutions in place to make this process work.  The accounting department is responsible for invoice generation, posting payments, generating reports and for handling client collection problems.

You learn that most firms do not outsource billing and they keep tight control on their day-to-day billable hours by managing it in-house. Their month-end billing process takes just 1 to 3 days, tops!

You and the Firm Administrator work together to come up with a plan to bring the billing cycle in-house to improve capturing more billable time and speed up the invoice processing to get paid faster.

To begin this process there are important procedures, tools and technology that must be in place prior to making the transition.  After all, time is money and for law firms this is the dreaded unavoidable task that takes away from generating core revenue.

First you must have the accounting staff in place to dedicate the time to handle the billing cycle responsibility.  In most firms, the billing process should only take about 16 hours a month, depending on the level of complexity.

Law firms with LEDES electronic invoice submission requirements will spend more time on their billing and post-submission monitoring and audits with the third party billing vendor.  In addition, accounting staff will open files, set-up billing arrangements, post payments, and work on collections while monitoring and reporting on billing performance.

Below are some recommended processes your firm should follow to bring billing in-house and reap its benefits, control cash flow, and manage business operations to budget and forecast throughout the month.

Review Contract With Outsourced Billing Vendor

  • Review of the outsourced vendor contract must be done to confirm the “termination terms” and “out clause”
  • Review the termination terms and send formal written notice billing services are terminated as of a date certain
  • Create a timeline of events for the outsourced vendor to perform the final billing cycle and provide financial reports
  • Timeline must include the terms and timeline for the vendor to release your firm’s financial data and that date should be confirmed in writing
  • Financial data must be provided in the pre-defined compatible format to import into a Practice Management Solution

Implement A Cloud-Based Practice Management Solution

  • Evaluate and implement a cloud-based Practice Management Solution
  • Purchase a license for every timekeeper billing fees and expenses to clients
  • Confirm solution has been built with Business Intelligence with a fresh User Interface
  • Confirm solution has a Mobile App built with Artificial Intelligence to efficiently capture time and expenses, track mileage and scan expense receipts anytime anywhere
  • Confirm Reports and Dashboards provide metrics to meet financial goals

Implement Mandatory Internal Billing Procedures

  • Have strict firm-wide billing procedures in place for timekeepers and billing managers
  • Mandate timekeepers input time directly as they work on cases or administrative tasks
  • Create abbreviations for consistent fee and expense descriptions to streamline the mundane pre-bill revisions
  • Generate “Missing Time Reports” weekly for timekeepers to review and confirm all client billable time is entered
  • Monitor Client Trust Account to confirm if replenishment is required per Fee Agreement

Streamline the Pre-Bill Processes

  • Have deadlines for Billing Managers to review and approve timekeeper billable time and expenses prior to the pre-bill process
  • Have strict cut-off dates when time and expenses must be entered, pre-bills are generated and turned around, and invoices go out to clients
  • Run spell-check at the pre-bill processing stage
  • Confirm that pre-bills sorted by the responsible Billing Attorney automatically when generating for easy distribution
  • Print pre-bills on colored paper (green or pink) to create a sense of urgency and to easily locate lost pages when Billing Managers separate the stack or pull pages aside (trust me no lawyer want to be stuck with the green or pink papers on their desk at billing time)

Set Final Invoice Processing Guidelines

  • Have timeframe to turn-around drafts, generate final invoices and stick to them every billing cycle
  • Email final PDF invoices directly to the client approving payment or the client’s accounting department
  • Provide a link for convenient, online payment on invoices to speed up payments to boost firm revenue quickly
  • Confirm all Billing Guidelines are met for processing electronic or LEDES submissions
  • PDF and store invoices in a separate directory to reduce overhead costs of printing, postage, and paper files

As you analyze outsourced billing cycles and workflow services it is apparent there is no quality control and valuable revenue is flying out the door.  Client billing arrangements are not properly set-up and certain invoices have to be manually recreated. Time entry descriptions require extensive revisions because the outsourced vendor is not familiar with your client names or the case phase and details.  These issues alone make the entire pre-bill revision processes a nightmare for your accounting staff.

In addition, outsourcing billing makes identifying timekeepers that are missing time difficult, and if timekeepers do not have the flexibility and convenience to enter time as they work regardless of the time of day or location, your law firm is losing revenue.

It is a proven fact when timekeepers are monitoring their billable time minute by minute, more billable time and expenses are captured. When timekeepers have the ability to enter their time efficiently, timekeeping becomes a fun game of competition amongst themselves to see how much time they can capture!

Taking control of your billing cycle by bringing it back in-house allows your accounting staff to manage the firm’s daily work-in-progress, payment receipts, and collection activity which helps to determine your expected revenue and, more importantly, manage your firm’s business operations.

Also having immediate access to billing information identifies clients with matters where fees and expenses are beginning to skyrocket out of control and Trust Funds are low, so you can request replenishment from your client mid-month.

Granular day-to-day monitoring of billing data for active cases ensures success in your day-to-day cash flow.

After all, client billing leads to revenue which is the bloodline for your law firm’s success.  Although time-consuming, the tasks involving the billing cycle are critical and require close monitoring and strict management. Doing this effectively will streamline the budgeting and forecasting for your firm’s future business operations and it will take you a step closer to achieving the much-coveted “boutique” status.

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