December 03, 2019

Applying Lean to Transform Law Firm Billing from a Support Function to a Solution Center

Navigating a typical month in a law firm billing department includes periods of calm, followed by intense, fast paced action where mistakes are often the result of poor billing processes. The billing process is essential to any law firm and any inefficiencies can lead to excess work in progress and realization issues that negatively affect cash flow.

It’s no secret that law firms must convert their work into revenue to succeed. That is why “it’s everybody’s job to ensure the work is done – and the work is not done until you’ve been paid,” says John Grant, Program Manager at Fisher & Phillips and author of The Agile Attorney. The steps taken after the lawyers perform their work are integral to ensuring that accurate and compliant bills are sent to clients quickly, so law firms can get paid.

Until recently, not many law firms considered the billing process to be anything more than a support function. Progressive law firms realize billing is an important part of the client experience. The billing practices that are best equipped to support this new way of thinking are those that are willing to think about billing issues differently and focus on “concepts from Lean and agile to build processes that help the billing department efficiently service clients,” says Grant.

Rethinking the Model: New Client Needs Require New Solutions

Most billing processes used today were not developed with current client requirements in mind. Firms cannot apply the same old billing processes and expect to satisfy their clients’ new expectations. However, by applying aspects of Lean concepts, billing departments can provide value above and beyond processing bills and become viewed by clients as a value added service. A hallmark of Lean thinking is to focus on what the client really cares about, which in today’s market is improving speed, efficiency and quality. These things can be achieved through reducing lag time, standardizing work and maintaining a client focus, which benefits law firms through improved cash flow and realization.

Here are three key areas where law firm billing practices can benefit from applying Lean concepts:

• Reducing lag time. Smart firms monitor billing lag time to improve their cash flow. Long lag times are frequently the result of significant time spent on high volume, low variability work. The longer it takes a law firm to release an invoice, the more likely it is that firm will carry unrealizable work in progress or their invoices will contain inaccuracies that can result in client disputes and, ultimately, write-downs.Through measurement of lag time, Lean billing departments can identify the inefficiencies in the process requiring the greatest effort and causing non-compliance issues. Fixing these things will improve speed, quality and cash flow.
• Standardizing work. Lean thinking requires billing practices to view the “time, resources and energy spent on performing work as potential barriers standing in the way of getting paid”, says Grant. Lean billing practices are able to quickly identify steps in the current process resulting in wasted time and poor allocation of resources. Standardizing repetitive work and eliminating wasteful steps in the process reduces time spent on non-revenue generating activities, which in turn improves realization of work performed by all members of the team.Billing practices should also consider new opportunities for standardizing work. For example, creating and following a standard process for monitoring and following up on work already performed by lawyers will help ensure that work is converted into revenue that does not go uncollected. Standardizing and streamlining the steps required to collect on work performed by lawyers will free up more fee earning capacity in the firm.
• Creating a culture of client focus. Lean firms emphasize the importance of client satisfaction. One tangible measure of client satisfaction for law firms is the frequency of client requests for adjustments and write-downs. To comply with changing client requirements, law firms must align customer satisfaction with the billing function.Although tasks performed by billing are rarely ever directly charged to clients, they play a critical role in the firm’s ability to deliver accurate and compliant invoices to clients. To fully engage billing in improving client satisfaction, law firms must streamline the billing process, promote collaboration between the lawyers and the billing team, and instill a shared sense of responsibility to proactively address issues and client needs.

Next Steps: How to Apply Lean Concepts

Recognizing how Lean can help law firms improve billing operations is only the beginning. By viewing common billing issues with a new perspective, law firm management can identify practical efficiency improvements that contribute to the firm’s realization and ability to generate cash flow.

There are many more ways in which Lean concepts can be applied to legal billing. The key is to find the right fit for your firm. To truly change the billing process, law firms must understand how to effectively utilize Lean methods to execute on their strategic priorities.

In Part 2 of this blog post (coming soon) we will share commonly used approaches and best practices for successfully implementing Lean billing.