Billing profitably and ethically

Issue August 2011 By Dustin A. Cole

The issue of billings isn't just about revenue. It's also about professional integrity, communications and client trust. Billings are one of the most important avenues of client communication; inaccurate, vague and/or delayed billings can cost more than yesterday's time. It can result in lost trust and future business.

At the same time, it has been estimated that attorneys fail to bill from 10-25 percent of their legitimate billable hours due to bad recording habits, disorganization, being overwhelmed and poor team management. That's a painfully large part of anyone's revenues to lose, especially when it represents legitimate work done and time expended.

Here are eight ways attorneys lose legitimate billable hours and fail to communicate effectively with clients, with solutions on how to bill more effectively.

Problem 1: The periodic 'reconstruction'

Reconstructing hours at the end of the day may lose you 5 to 10 percent. Waiting a week can lose as much as 15-25 percent.

It is virtually impossible to accurately reconstruct work done more than a day ago. The big pieces may get recorded, but most of the smaller pieces - momentary conversations, e-mail responses and impromptu meetings - will be lost, even though each was legitimate client work. From the ethical side, trying to reconstruct work done more than a few days ago is an exercise in fiction writing - imprecise and possibly erroneous.

Solution 1: Track your time concurrently

The most obvious solution is generally the most hated. But is it more enjoyable to not get paid for 10-25 percent of your work? Is a 10-25 percent increase in revenues worth a change of habits?

Reduce the struggle by obtaining a separate dictation machine just for recording time. Carry it with you at all times. Dictation is less intrusive and more explanatory than software or writing time sheets, and can be done anywhere - in the car, on the train, at home - helping you capture more time.

Problem 2: The good client courtesy

"It was just a two-minute call, she's a good client, I won't nickel and dime her." How many calls do you not record in a given month? How many of them contained important information or valuable client interaction?

Solution 2: Record it -- always

Record everything you did, without judgment - and decide only once - at pre-bill - what to bill or comp. Ethically, professionally and financially, recording everything is the only choice. That way, the client has full information on your work for them - and sees what you have decided not to charge them for.

Problem 3: The interruption

How many times have you hung up the phone and were immediately attacked by a team member with a question, or dashed out of your office late for a meeting? Such interruptions cause you to fail to record your time - and often it's lost forever.

Solution 3: Keep your door closed

Train your team to honor it, and to hold non-urgent questions for regular daily meetings or specified open-door times. Designate non-call times and have your assistant take messages, facilitate or pass on calls to your team. Then designate a call-return time, instead of returning calls on the fly. No matter how rushed, always take the 30 seconds needed to dictate time.

Problem 4: The 'I was in lala land'

You've worked for four hours, but you've been unfocused and unproductive. So you write down three. Or two. After all, "I didn't get much accomplished, so I can't very well bill for it!"

Solution 4: Record it all without judgment

A certain amount of unproductive wandering around is often necessary. Your brain is processing unconsciously even when you're not very conscious. Three hours of "wandering around" often leads to one flash of inspiration. So write it all down and save that judgment for the pre-bill stage.

Problem 5: The 'Work in progress' black hole

Many lawyers just don't get around to billing some clients, especially when there has been little progress, or it's a "D" client. So the bill waits a few months and accumulates - and the client's recollection of calls, meetings and so on get dimmer.

Solution 5: Bill monthly, unless the client says not to

Remember that billings are a crucial part of client communications - possibly THE crucial part. It's the basic report to the client on your activity for them, and what you're charging. Delaying your billing is obfuscation, since you've done work that obligates the client to pay, but you haven't given them the courtesy of telling them. Essentially, it's not an option to delay these reports unless the client specifically directs you to.

Prompt billings help assure prompt payment because the client is more likely to remember recent activity and less likely to question items. Anything less than monthly billing means the loss of the time value of money (you're playing banker for your client) and sets you up for the next problem area.

Problem 6: The first write-off

The vague, reconstructed or delayed bill is sent. The angry client calls with questions, so you trim the bill a bit to placate them - but really to compensate for your poor billing practices.

Solution 6:

See Solution 5.

Problem 7: The second write-off

The unhappy "D" client negotiates your bill down again and still doesn't pay. You call them again to ask for payment, and end up trimming the bill even more.

Side note: At this point, you'd do well to ask yourself a question. Was that a "D" client in the beginning, or was it an "A" who went downhill due to poor communication - such as billing practices?

Solution 7:

See Solution 5, but also re-examine your client intake process. Are you accepting "D" clients? Or are your communications and client service creating "D" clients?

Problem 8: The final write-off

That "D" client who has consumed more unbillable time arguing about billing finally refuses to pay.

Should you sue for fees? Never, unless the amount is huge. If you do consider it, remember to add in the dollar, time and psychological costs of defending an unfounded grievance or malpractice claim, because both are the refuge of the "D" client.

Solution 8:

None, except to review solutions 1-7 for next time.

Conclusion: It takes a perspective shift

For most attorneys, poor billing practices are actually a symptom of other problems: poor client selection, poor office procedures, office disorganization, poor team management and attorney overwhelm. Focusing on these areas can produce significant results.

But the larger solution is a shift in perspective. You must stop tracking billable hours and start tracking time.

That's right. Record everything. Don't make those moment-to-moment value judgments about billable or not billable. Simply record all of your time, and then make only ONE judgment each month about how much to bill.

And how to decide how much to bill? Stop thinking in terms of the time you put in, and start thinking of the value you delivered. Look at the total dollars, and ask yourself, "Was I worth that this month? If so, bill it undiluted. If you still feel the need to write down some time, show it on your bill, then deduct a courtesy discount, and let your client know the consideration you're giving them.

Either way, remember that providing your client with a full accounting of your work for them is an essential professional obligation.

N.B.: If you also record everything non-billable - admin, marketing, personal - for a week or two, you'll learn more than you wanted to know about your work habits and time wasters. The awareness will have you operating a bit more efficiently.

The law - and the billable hour - are merciless taskmasters. But you can reduce the misery by making sure you get paid for all of the hard work you do, and by making sure your billings are communicating effectively to your clients.

Dustin A. Cole, president of Attorneys Master Class, is a master practice advisor who helps attorneys build more profitable, enjoyable practices and create financially successful retirement and transition plans.