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Law Firm Billing: Breaking Away from the Billable Hour

by Fatima Friefer

case management software, practice management software, legal accounting software, legaltech, technology for lawyers, case management, immigration, london, united kingdom

How law firms are moving from a traditional hourly format and embracing a more modern system

Over the years, legal professionals have billed for legal services based on the amount of time they spent working. This system has always been an imperfect measurement of value to clients, but in recent years, it has experienced a shift thanks largely in part to the rise of virtual conferencing.

The great remote-working experiment has dissolved geographic barriers in the legal sector, and the consequences might be far-reaching. It is enough to observe the changes that have occurred in the previous year, such as where law firms and corporate outside counsel must be situated.

Several large law firms are employing associates in places where they do not have a presence. Meanwhile, law firm executives are looking for partner talent in locations regardless of whether they have a stable hub, being open to the idea of virtual resourcing.

However, like with many elements of a firm’s customer relationship, there are criteria that regulate the kind of services for which clients are willing to pay. Anything outside of those parameters is off-limits. Firms are now focusing on how to reduce the amount of non-billable work they conduct when managing a case as well as ensuring as much of their time as possible is billed.

Most legal firms have already changed how they function in some way, with many adopting more online cloud technology to allow remote work — both among personnel and with clients. Many businesses are also realising that these developments are likely to be permanent and irrevocable in many aspects.

These are just a few of the results from Thomas Reuters  latest Legal Trends Report, which is based on aggregated and anonymized data from tens of thousands of legal professionals in the United States – and should be regarded as key insights into legal practise in the United Kingdom. [1]

Lawyers are still experiencing financial problems

According to the impact of COVID-19 on law firms, many lawyers have noted that their casework has fully recovered since the coronavirus pandemic’s early beginning, albeit monthly billings remain weak when compared to seasonal profits from previous years.

This might be due to the fact that many court-related circumstances are outside the lawyer’s control, and many potential clients are reluctant to pursue their legal cases. This means that law firms should consider how to maximise their prospects in what remains a potentially unpredictable market.

Advantages of Modernising Law Firm Billing

Most businesses seek to speed up the process without sacrificing accuracy or compliance. Invoices sent in this manner are more likely to be returned for another round of write-downs, adding weeks to the collections cycle and building up an unfavourable backlog.

Modern billing technology, created primarily for major law firms’ procedures, may dramatically increase the speed and accuracy of billing. More significantly, it can assure OCG compliance and a seamless eBilling process.

But the question is whether legal firms will invest in the same degree of expansion in major cities if they can purchase a virtual practice in another market. The epidemic has prompted a slew of issues regarding legal sector personnel movement and how firms are dispersed and priced across the country.

Partners in high-rate practice areas experienced the greatest average rate increases in 2020. Regulatory and compliance rates increased the most, by 4.1 percent on average.

Aside from technological pressures, external research indicates that the hourly billing model has created significant reputational challenges for the legal industry.

Improper Time Tracking Has Legal Econsequences

Improper time tracking can have a negative effect on law firms. According to the 2020 Legal Trends Report, attorneys spend around 30% of their time on billable work, with the other two-thirds spent on non-billable time. [2]

Lawyers may solve this productivity gap by diligently measuring their time and keeping precise documents. Unfortunately, many attorneys still manage their time using calendars, call logs and out-of-date Excel spreadsheets.

What is significance of precise time keeping in law firm billing?

Billable time from working hours is an important aspect in determining law firm and professional growth. These billable hours can be used to calculate the worth of fixed fee rates as well as the time and effort invested. Individual attorneys may lose significant earnings if they spend hours in a workday, especially over lengthy periods of time. Lawyers who do not track their non-billable hours are unable to maximise productivity and guarantee that they are compensated for time and effort.[3]

It has transformed the billing process within legal firms into a dreaded monthly event that lasts far too long amid a flurry of hand-marked paper bills being handed back and forth. For some businesses, the transition to a digitised and structured paperless billing procedure has been long overdue.

Clients continue to drive company decisions, leading firms to expand their presence outside of their offices. As a result, the most successful law firms will continue to broaden or deepen their areas of competence. However, where and how they invest in people and growth will change.

The aforementioned topics highlight the principles of law firm spending structures, growth patterns and how they may alter in the foreseeable future.

Adoption of New Legal Billing Methods

Law departments are working on numerous methods to increase value, cut costs and take a more client-centric approach to law firms. These are essential for gaining new clients, improving client experience and assuring positive satisfaction.

A recent legal trends industry report by Thomas Reuters found that the majority of clients believe their lawyers overcharge them.

However, according to the same report, the average lawyer only logs 2.2 billable hours per day. When you compare the value that the legal industry provides to its clients and the moderate average daily billing rates to its overwhelmingly poor reputation, it’s easy to wonder if the current billing model has worked well in the past, let alone the future.

It suggests that attorneys should tailor their services to the demands of their customers. Lawyers are cooperating with other service providers to provide their clients with effective solutions.[4]

Conclusion

Aside from technological pressures, external research indicates that the hourly billing model has created significant reputational challenges for the legal industry.

Furthermore, regardless of technology, billing by the hour is an inefficient way to build a long standing relationship with clients because it separates the unit of cost from the unit of value. Furthermore, hourly billing has the opposite effect on a lawyer who has invested heavily in skill, knowledge, and productivity management platforms. If a less efficient lawyer can provide a better solution in one hour than a competitor can in three, the less efficient lawyer has captured more of the value created than the better lawyer.

case management software, practice management software, legal accounting software, legaltech, technology for lawyers, case management, immigration, london, united kingdom

References

References

[1] Big Law Hiring Trends May Change Billing Rates, Growth Patterns, Christine Simmons, May 2021, https://www.law.com/2021/05/13/big-law-hiring-trends-may-change-billing-rates-growth-patterns/

[2] Six Advantages of Modernizing Law Firm Billing, Marie Burgess, https://www.aderant.com/think-tank/modernizing-law-firm-billing/

[3] Stop giving away your time: How technology can help improve law firm profitability, Thomas Reuters, Feb 2021, https://legal.thomsonreuters.com/blog/how-technology-can-help-improve-law-firm-profitability/

[4] Legal Implications of Improper Time Tracking, The National Law Review, Oct 2021,https://www.natlawreview.com/article/legal-implications-improper-time-tracking