December 22, 2022

 Sarah Wilson-Ward

ROI billing legal operations law firm

With the end of the year comes the annual sprint to finalise bills and collect as much outstanding revenue as possible. Throughout, many lawyers remain blissfully ignorant that their scramble to close out the year is costing their firm revenue—and incurring other costs. With economic uncertainty looming across the globe, it is hard to imagine a worse time for firms to have to absorb the negative effects of antiquated billing practices. And yet, at many firms, the more they bill, the more they lose.

This may seem impossible. After all, if firms didn’t make the year end-push, they would undoubtedly forego revenue. Therefore, greater collections mean more revenue and greater profits. This statement, while correct, it overlooks four types of losses.

The most obvious loss is from administrative overhead. Poor billing practices require more staff working longer hours. The direct costs include salaries, equipment, and rent. All of these go directly to a firm’s bottom line.

Second, there are opportunity costs. Every second spent billing is not billable. The rejoinder – ‘but we have to spend time on billing to get paid’ – misses the point. The issue is not whether you must sacrifice billable time in order to collect payments; it is whether there are ways to reduce the time spent on billing. Doing so means more time for lawyers to focus on chargeable activities and administrative staff to tackle other work.

And remember: the slower your billing process, the greater the risk of write-offs. At some point, that risk begins to outweigh the marginal returns of taking additional time to determine every last second of billable time.

The third cost is reputational. Inefficient billing practices strain relationships with clients. No one enjoys going back and forth over the accuracy of bills. Plus, when a client has modernised their billing practices but a law firm has not, client frustration with the pace and accuracy of billing becomes inevitable. The wider the ‘modernisation gap’ between client and firm, the higher the chances it will colour a client’s perception of a firm’s abilities beyond just operational tasks.

Finally, there are competitive costs. Nothing prevents your competitors from modernising their billing practices and reaping the financial and reputational benefits of doing so. Can you afford the risk of losing work to firms that clients find easier to work with on administrative matters such as billing? Moreover, the state of your billing processes impacts your ability to recruit and retain talent. No lawyer is likely to jump at the chance to work for a firm where they will spend more time on administrative chores and less on substantive work. In addition, optimised billing practices help demonstrate your firm’s attention to the operational issues that contribute to a firm’s stability and longevity.

Simply put, innovating your billing practices is a financial, reputational, and competitive necessity. Even if improving and accelerating your billing process requires new expenditures (e.g., new software, training, etc.), your firm likely will come out ahead. The sooner you tackle the problem, the sooner you will see positive ROI. And remember: nothing is stopping other firms from evolving their billing process and gaining. As more of them do, the question becomes, Can you afford the cost of delay and the luxury of inaction?