Daily Dispatch

Law Firm Technology

Small Law Firm, Big Accounting Challenges

By | Jun.06.13 | Daily Dispatch, Law Practice Management, Legal Technology, Money

Law Firm Billing

You’re a lawyer, not an accountant. Yet many lawyers who run their own firms are forced to face billing and accounting head on to ensure their doors stay open. And the challenges only seem to be mounting, especially for small law firms.

But why—and what’s the solution? Here’s a rundown.

Today’s Legal Billing Is More Complex

One contributing factor is that today’s clients are savvier about the value they receive from service providers. Hand in hand with that, competition in the legal marketplace is no longer just with the firm down the street. Unbundled and virtual, web-based services are threatening to steal the thunder from smaller firms.

Tied into this is that many law firms are adopting fee and billing arrangements outside the typical hourly billing methods, or implementing flat fees, to stay competitive. Also, more corporations, insurance companies and financial institutions are moving to electronic billing, forcing lawyers to adapt to those systems in order to get paid.

Add to the pile changing compensation structures for billable staff, and profit splits for partners, and you’ve got a complex cash-flow stream that simply can’t be covered by piecemeal methods like manually tweaking spreadsheets and editing client bills in a word processor. That’s akin to moving a mountain of dirt with nothing but a cup and a spoon—they’re the wrong tools for the job.

Solution: Use the Right Tools

Today, there are plenty of powerful, affordable legal-specific technology tools that can help resolve even the biggest accounting challenges facing your firm. But how do you determine if a given product will meet your practice’s needs? The essential decision-making step is for your firm to answer key self-evaluation questions, so you can understand what features you are looking for and determine which solution is best for your particular situation.

Here are a few top-of-mind considerations to think about during this process.

Time and expense capture. Accurately recording billable time is the first step to keeping in business. So what features allow firms to really accomplish the maximum amount of adoption by billers?

  • Look for products that offer multiple ways to capture time and expenses, from electronic timesheets to time-slip views.
  • For expenses, many vendors offer invoices in electronic formats ready for importing directly into your billing system. Some examples of things the system should be able to import are legal research costs, photocopy charges, postage from machines and so forth.
  • Some also provide tools to reveal activities you’ve recorded that have not been billed. The most common way is repurposing existing calendar appointments, emails and documents that have been worked on, showing the billers the ones they did not bill.
  • Also, everyone has a smartphone these days, so look for the ability to capture time and expenses on the go.

Integrated billing and accounting. You can minimize the time between billing and getting paid with an integrated billing and accounting system that shows client-related checks and trust account disbursements in one system. This eliminates accounting/billing reconciliation worries, cuts data-entry duplication, and reduces human errors made in the process.

Billing arrangement options. Alternative fee arrangements can be a win-win for the law firm and client, as shown in this ALM/LexisNexis AFA survey. Clients like predictable bills, and attorneys like negotiating a lower fee for shared risk tied to case outcomes. Here, look at the ability to bill activities/tasks at a flat rate, or a negotiated rate, even at the staff level. You want automated processes to ensure clients receive an accurate bill, representative of your agreement.

Electronic bills and LEDES formats. Some law firms are required to submit bills using one of the Legal Electronic Data Exchange Standard (LEDES) formats. Setting these up can be challenging, and if not done properly, will lead to bill rejection and resubmission, so having an application that supports specific bill formats is a must. Many offer mandatory, client-specific task codes that lead to faster payment and fewer headaches, too.

Compensation reporting. Most systems can provide a standard set of reports, but compensation presents some particular challenges; partners and associates are often paid based on some combination of billable hours, receipts, origination of clients, management of cases or matters, etc. Look for products that allow assigning a responsible attorney, and a fee allocation percentage by client or matter. The right tool will use overhead reports that allow identification of certain expenses to be divided by specified billable staff.

To paraphrase an old adage, “The attorney who hires himself as a CPA has a fool for a client.” Today’s legal-specific billing and accounting tools can help even the smallest firm overcome the biggest accounting and billing challenges, freeing you up to do what you do best: practice law.

Loretta Ruppert is the Sr. Director with LexisNexis Law Firm Practice Management. Loretta brings experience as a previous business owner and legal technology consultant, a manager of professional services for a CPA firm, an accountant, and a subject matter expert for developing back-office software. Probably most relevant, she is a former law firm employee and user of law firm practice management and financial systems. Follow her @LorettaRuppert

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One Response to “Small Law Firm, Big Accounting Challenges”

  1. RJon Robins
    7 June 2013 at 9:37 am #

    I was lucky enough to see a live presentation from Loretta about some of the finer points of small law firm billing and financial controls during part of a seminar on small law firm marketing and management. Great stuff, thanks Loretta for this very practical article!


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