Did you know that, in 2021, lawyers recorded an average of 2.5 billable hours in an eight-hour day?

The rest of their time was spent mainly on administrative duties, including invoicing, processing payments, and updating trust ledgers.

Law firm billing is one area that takes up a lot of time. It’s so central to the success of a business that it’s surprising how many firms neglect to spend the necessary time on getting their billing systems right.

Ultimately, you need a streamlined process that:

• Automates the tracking and entering of billable time
• Simplifies the creation of invoices
• Automatically sends invoices to clients
• Follows up to get invoices paid

This ensures you get paid faster, spend less on billing, free up time for casework (more billable work), and provide a better client experience. The alternative is a billing system that is time-consuming, laborious, repetitive, and a headache for lawyers.

In this article, we’ll take you through:

• The rates you should charge
• How to implement a billing system that works for your firm
• The best practices associated with attorney billing
• An overview of the best legal billing software packages available

This will help you improve your present billing system — or if you’re just starting up a law firm, get it right from the beginning.

---

---

How do you set the right rates for your work?

The ABA’s Model Rules of Professional Conduct state that you may not collect an “unreasonable fee” or an “unreasonable amount for expenses.”

But what is reasonable?

The rate you charge for legal work will depend on numerous factors, including your practice area, location, level of experience/seniority, time constraints, the cost of doing business, and so on.

Whatever you charge, it’s essential to know how you compare to other firms in the area. Here are some useful benchmarking statistics from Clio’s 2021 Legal Trends Report,

Practice area counts for a lot. For instance, corporate law firms specializing in bankruptcy and IP billed the highest rates in 2021 ($362/hour), while juvenile law firms billed the lowest rates ($91/hour).

Whatever your rate, your bills must clearly itemize the work performed to justify the fees charged. That applies to any business.

---

Lawyer billing options besides billable hours

An hourly rate is not the only way for lawyers to bill their work. It’s always necessary to know what your time is worth, but other fee options suit some firms in some practice areas.

---

Contingency fees

Contingency fees mean you get paid a percentage of the final settlement or award. This arrangement is commonly used by personal injury lawyers and enables people who otherwise might not be able to afford legal assistance to hire a lawyer (no upfront costs).

Contingency fees can be lucrative for lawyers — they can amount to 35-40 percent of the total award — but lawyers share the risk with the client as there’s no guarantee of winning the case.

Also, keep in mind that contingency fees are prohibited for certain types of cases. Check your state’s ethics rules before setting up contingency billing.

---

Flat fees

Flat fees are a viable alternative to hourly billing when there is a clearly defined scope to the work. The danger is that work estimates greatly exceed the expected hours, so you’ll need to be smart with your flat fee rate structures and include a clear scope of work for cases.

Depending on your practice area, you may need to “unbundle” services and charge separate fees for evaluating a case, suggesting documentation, providing limited litigation, settlement by mediation or negotiation, representation at trial, etc.

Flat fee arrangements can be beneficial for both lawyer and client, as there are no surprises.

---

Subscription-based fees

Subscription-based law firms charge a set monthly fee for which legal services are provided on an as-needed basis. A good example is an IP lawyer, who provides regular assistance with trademark applications, IP protection, etc.

The main benefit for the law firm is a predictable income, but not all clients are amenable to the idea of paying a subscription.

---

Sliding-scale fees

Sliding-scale fees can be an effective way to make your representation affordable for low-income clients.

Client fees are based on income, so the more a client earns, the higher rate they pay. The obvious downside to this setup is that high earners may object.

---

Evergreen retainers

With evergreen retainers, clients provide an original retainer held in trust against which legal services are billed. Funds are topped up when the trust account reaches an agreed minimum balance.

This system requires automated alerts when trust funds are low but is a great way for lawyers to ensure they get paid on time. However, the client may be reluctant to agree to pay a retainer.

---

Payment plans

Clients may want to pay their bills but be unable to. By offering payment plans, you can reduce the burden on clients and receive smaller but more regular payments.

If a payment plan is the way forward for you and the client, draft an agreement to determine payment schedules, methods, and penalties for late payment and ensure you have the right software to bill accordingly.

---

What are your attorney billing system priorities?

Does spending valuable time on spreadsheets to track hours, manually invoicing clients, and chasing payment make good use of your time?

Most lawyers would concede that it doesn’t.

So, if you’re regularly tied up with billing tasks, freeing up your time to do more billable work should be a priority with any new law firm billing system you consider.

But what are your other priorities as you consider your billing system?

---

Faster payments

Getting paid faster should be a primary goal of any billing solution. It helps cash flow and saves time because you don’t need to chase clients.

---

Hands-free

Automation is key if you want to streamline workflows, create efficiencies, save time, and not stress about what you’ve forgotten to bill.

That means using the available technology to introduce a billing system that is as “hands-free” as possible, avoiding repetition and double data entry. It should automate the preparation and sending of invoices and collection of payments online (no mailing of checks).

---

Easy to use for staff and clients

The billing system needs to be easy for you and your people to use — and easy for clients to make payments.

The billing software options detailed in the section below are user-friendly and cloud-based. They require little more than basic staff training, and any client who has paid a bill online before can use your credit card payment system.

---

Easy to integrate with accounting software

When an invoice is paid and the billing information is updated, the accounting system must also update, so your firm’s bookkeeper has the most up-to-date information.

---

Affordable

Smaller law firms and solo attorneys, especially, will want to keep an eye on the budget and look to keep implementation costs and ongoing expenses down with billing.

---

Scalable

You want a billing system that serves your law firm for many years ahead. So, the solution you choose now should be able to scale as your firm takes on new clients and grows.

---

What attorney billing guidelines and rules apply in your area?

It’s not only clients who will be watching your bills. Law firms are bound by some stringent professional regulations, and billing may be scrutinized by your local jurisdiction if flagged.

Law firms must generally have separate ledgers for client funds held in trust. Especially strict rules may apply to collecting funds into a retainer held in trust, so check your local state guidelines.

In many jurisdictions, for instance, the law firm must pay processing fees associated with online transactions.

This can create problems as most credit card services automatically include the fee as part of the transaction from the client. This breaches the rules, so you would need a billing solution that incorporates a credit card processor that charges fees to the law firm rather than the client.

---

Lawyer billing guidelines

If you’re a lawyer working with large firms, the client may impose particular invoice formats and other requirements to follow when billing.

Even if you’re not bound by such restrictions, lawyer billing should be consistent and clear.

Focus on the following:

• Create a billing template that works for the majority of your clients
• Develop billing descriptions that clearly define the services charged, e.g., meeting to discuss defense statements, recording the facts of the case with the client, etc.
• Introduce a consistent system of billing codes, e.g., for meetings, document drafts/revisions, research, etc.

For larger clients, you may need to incorporate LEDES (Legal Electronic Data Exchange Standard) billing codes for time and expenses in your invoice formats. These make it easier for large companies to process payments.

We recommend working with a legal billing specialist if you’re unsure of the rules and guidelines.

---

How to create a law firm billing policy

A transparent and standardized law firm billing policy should set the billing guidelines for your lawyers and clients and keep everybody on the same page.

As you will see later, setting the right expectations for clients is essential for getting paid on time. A billing policy formalized and made public can help you do that.

Take some time to consider the following before you make any decisions:

• How you will bill clients
• How you can reduce errors
• How you can remove bottlenecks
• How you can spend less time billing clients
• How you can design the process to get paid quicker

To create an effective billing policy, we recommend the following steps.

---

Decide attorney billing guidelines and create a template

Invoices will need to be standardized. You’ll need to decide what they look like, the length of descriptions, how to include expenses, the use of billing codes, when they are sent, etc.

---

Create a workflow for the billing process

Document the lifecycle of a bill by creating a workflow that covers everything from when you onboard a client to when their payment hits your account. This will help your people follow protocol for billing and keep things consistent for clients.

Attorneys must understand when they need to review a bill, how bills are sent out, and when payment can be expected. Reviewing bills is an important part of the process made easier with access to the right legal billing software.

Even if you’re a solo attorney, documenting the workflow will help.

---

Integrate the billing system with accounts

Your finance team, accountant and/or bookkeeper need to be across the billing process for clients for a solid understanding of the collection process, when payments will come in, what needs to be written off, and so on.

The billing software you choose should also integrate with your accounting software.

---

Decide how disputes are solved

Most of the time, automated billing systems reduce errors and help you get paid faster, However, disputes are part and parcel of providing services to clients. You can’t please all of the people all of the time.

If a bill is unpaid, it’s in your interests to find out why and resolve any dispute. Automated reminder letters help but it’s best to designate someone in the firm to follow up with a phone call or personalized email if an unpaid bill issue escalates.

---

Make the policy public

Once you’ve confirmed your law firm’s billing policy, make it public so clients understand when they will be billed, what they will be billed for, when they will be expected to pay, how they can pay, and what happens with late payments.

By writing it down and keeping it up-to-date, clients and attorneys have a standardized policy to refer to.

---

Accurately track time spent on casework

Tracking the time spent on casework should not involve spreadsheets. Yet many smaller law firms still work like this.

You can simplify the time-tracking process by allowing all lawyers in your firm to track billable hours using timekeeping software and enter it directly into your billing system.

With cloud-based billing software, attorneys don’t need to return to the office or open a spreadsheet to record the time. They simply enter the details wherever they’re on any device (providing they have an internet connection).

By simplifying the steps needed to convert billable activities into billable time on an invoice, you increase accuracy and rely less on the memories of lawyers to relate billable hours after they return from the courtroom or client offices.

For instance, billing software uses default billing activity descriptions, making it easy for lawyers to select the appropriate activity when entering billable time. This reduces errors, prevents billable time from being missed in the logs, and increases accuracy.

---

How do you simplify invoice creation?

Another excellent time-saving step with billing is to simplify the process of creating invoices for you and your people. Legal billing software simplifies it, removing the need for paper invoices entirely. A few clicks of the mouse is all it takes.

You remain in control of how your invoices look and what they include. Still, you can develop templates, reduce the repetition of entering data manually, and automate the sending of invoices online.

Most of the best legal billing software allows you to easily customize your invoices by choosing from various options, including activity descriptions, billing codes, expense-only invoicing, etc.

---

How to get paid faster and spend less time chasing clients

Did you know…

Why is this?

It could be for many reasons, but a leading one is that they don’t have time to chase up payments.

Interestingly, the 11 percent figure is down from 14 percent of lawyer invoices that went unpaid in 2019. This could suggest that the problem of revenue left on the table is improving as more law firms switch to more efficient billing systems.

Ultimately, your billing system should be automated and make it quick and easy for clients to pay you. Then, less follow-up is required, and everyone’s happier.

Getting paid faster is achievable with an automated billing system that does the work for you combined with better communication with clients.

---

Set expectations early about your firm’s billing policies

While automation makes repetitive tasks easier, there’s no escaping the power of good communication.

You may be the first lawyer a client has ever had to pay so, during the onboarding process, communicate your firm’s fees and billing policies clearly to avoid nasty surprises.

Take clients through your policies (as defined in the section above), what will appear on their invoices, when they will arrive, and how they can pay.

This will help clients prepare and budget for your bills so that when they arrive, there are no delays. g

---

Remove bottlenecks

Internal bottlenecks within a law firm’s billing process are often responsible for delays. For instance, attorneys may not review and approve bills promptly before they are sent out or certain service charges are missed off invoices and need to be re-billed.

One of the main goals of any new lawyer billing system should be to remove these bottlenecks so you get paid faster.

---

Consistent and detailed billing

When bills arrive at a predictable time, with an accurate and detailed breakdown of the time charged, they are more likely to be paid.

Bills accumulated over a long period and sent at inconsistent times are harder to budget for. Similarly, if clients do not understand what the bill is for, delays are likely.

By invoicing clients frequently as they expect, you build trust and are more likely to be paid on time.

---

Automate invoice reminders

Once invoices have been sent to clients, automated invoice reminders can alert you if they aren’t paid — but you don’t have to pick up the phone and start chasing.

A follow-up invoice can be automatically sent to the client with a reminder of the outstanding balance.

---

Accept credit card payments

Making it easy to pay is an important element of any modern law firm billing system. Clients now expect to be able to pay electronically using a credit card and are more likely to pay you on time if you reduce the number of steps they must take to do so.

Just make sure that the credit card system you implement follows the ethical regulations for lawyers, as outlined above (e.g., no chargebacks or fees for trust accounts).

---

Allow clients to set up payment plans

Payment plans break larger legal bills down into more manageable chunks for clients. Legal billing software makes this quite straightforward, and the increased flexibility is likely to be welcomed by clients.

When you set up the payment plan, establish the amounts due and due dates, share the information with your client, and receive payments electronically. Send out automated payment reminders if necessary. This is almost impossible without dedicated billing software.

---

So, what will your billing process look like?

An efficient law firm billing process that charges an hourly rate will usually look something like this:

• Onboard a new client and inform them of the billing process from the start
• Log billable time and disbursement fees/expenses as the case progresses
• At the end of each month (or at case end, if applicable), the bills/expenses for each client/case are entered into a draft bill
• The attorney(s) reviews the bill, adds notes and adjusts costs accordingly before approving the bill
• The final version of the approved bill is automatically sent to the client
• Clients pay via online payment
• If no payment has been received, automated reminders are sent out
• If there is a payment dispute, a designated person is responsible for following up with the client to resolve it

---

How can billing improve the client experience?

A good billing experience can improve the client experience with your law firm — and better service should not be underestimated regarding word-of-mouth referrals, repeat business, etc.

Clients demand convenience and options when making payments.

These preferences indicate a shift towards greater trust in online payments, and it’s widely expected that law firms now offer this option.

What’s good for clients is generally good for your law firm in the long run: quicker payments, fewer cash flow issues, and more people spreading positive words about your firm.

---

Reporting and monitoring

Even if you have automated reminders for outstanding balances and the billing system runs practically hands-free, you must oversee it and ensure it’s all on track.

You do that by running reports on your law firm’s billing, invoicing, and collection data. Outstanding balances, payments, and revenues must be tracked to oversee the health of your business — don’t just wait for your law firm’s accountant or bookkeeper to flag issues.

Following are the main reports you’ll need to generate regularly for your firm:

• Accounts receivable report: Defines the amounts outstanding on all open and past due invoices broken down by the user, client, and matter.
• Accounts receivable aging report: Divides overdue accounts receivable into unpaid bills 1-30 days old, 31-60 days old, etc., so you can follow up with slow payers more easily.
• Revenue report: Details hours, expenses, and taxes related to unbilled, billed, and collected amounts.
• Billing history report: Provides a detailed view of open and past-due receivables and paid invoices for a complete client billing history.
• Invoice payments report: Provides a detailed overview of invoice payments for applicable services and case expense items.
• Matter balance summary report: A snapshot of outstanding receivables, work in progress, and expenses in progress so that you can project future revenue to be collected for each matter.

The best billing software also enables you to drill down and generate many other types of customized reports covering the following:

• Case revenue report: Shows cases billed during a given period, allowing you to compare earnings on those cases during that same period.
• Fee allocation report: Shows amounts billed and collected by specific users at your firm during a certain period.
• User time and expenses report: Provides time and expense entries for a particular employee.
• Case time and expenses report: Provides time and expense entries for a particular case/matter.
• Trust account activity or summary report: Shows all contacts with trust balances, including total credit, total debits, and “as-of” balance.
• Electronic payments report: Shows all payment activity made via eCheck and credit card within a specified period.
• Credit card fees report: Provides a detailed view of fees taken from the operating account.

If your law firm runs a retainer system or charges on a contingency basis, you’ll need to generate additional/different reports.

---

Billing software options

Billing software for lawyers is often included as part of legal practice management software packages, from which there are plenty of options to choose.

Most of these options are cloud-based and will help you introduce a more professional and automated way to bill clients and manage your practice’s information, documentation, clients, calendaring and even accounting.

They introduce a lawyer billing system that sends accurate, error-free customized invoices to clients consistently, on time, and with multiple online payment options. Most also manage trust accounting and will integrate with your accounting program (QuickBooks Online, Xero, etc.)

A few of the many billing software options currently available are:

• TimeSolv: $39.95per user per month with a free 30-day trial
• Rocket Matter: $39 per user per month with a free 15-day trial
• MyCase: $39 per user per month with a free 10-day trial
• Clio: $49 per user per month with a free 7-day trial

As you can see, these packages are similarly priced, and while they offer slightly different features, most will help you achieve a far better billing system than you currently have.

Remember, any investment in billing automation is an investment in freeing up your time to spend more on work with clients and cases. That means more billable hours.

It’s worth keeping in mind that lawyers, on average, bill around 2 hours a day.

---

Spend more time lawyering and less time billing

A streamlined billing process based on dedicated lawyer billing software will ultimately save time and result in faster client payments and ensure that you meet the strict ethics and accounting regulations that apply to law firms.

That means fewer cash flow frustrations, lower stress levels, and more time spent doing what you’re best at: helping clients win cases.