Time registration and billing – a constant challenge for law firms
Accurate time recording and billing are crucial to the profitability of a law firm. In a competitive environment, law firms are often faced with the need to adopt alternative billing methods to meet their customers’ needs and expectations. These alternative methods, while beneficial in terms of flexibility, also bring their own set of management and monitoring challenges.
Alternative billing methods: An overview
- Fixed price/Budget: A fixed sum is agreed in advance for a specific service. This offers predictability for the customer, but the firm must ensure that the work does not exceed the agreed cost.
- Cap Fee: Similar to the flat fee, but with a maximum limit on the fees that will be invoiced.
- Result-based fees: Fees are based on the result obtained. If the lawyer wins the case, he receives an agreed percentage of the settlement.
- Preferred hourly rates: Reduced rates are offered to certain customers, often based on the length of the relationship or the volume of work.
- Subscriptions: Customers pay a fixed amount on a regular basis (monthly, annually) for a set of services.
Legaltech and package deals
Many legaltechs have adopted a packaged product model, offering standardized legal services at a fixed price. This responds to customer demand for greater cost transparency and predictability. However, while this model offers simplicity, it may not be suitable for more complex cases that require personalized attention.
Limits of hourly billing
Hourly billing has long been the norm in the legal sector. However, it has several disadvantages:
- Lack of predictability: Customers may be reluctant to commit without a clear idea of the final cost.
- Incentive to slow down: In some cases, billing by the hour can encourage you to work less efficiently in order to charge more.
- Misalignment of interests: The client wants the work done quickly and efficiently, while the lawyer may be encouraged to spend more time to increase fees.
Monitoring billing agreements
With the diversity of billing methods, follow-up becomes a major challenge. Each agreement must be carefully documented, monitored and reviewed to ensure that commitments are respected on both sides. Without a robust management system, billing errors can occur, leading to disputes and loss of confidence.
Differentiation between production hours and hours worked : Performance analysis
When managing a law firm, it’s essential to differentiate between two types of hours: production hours, which are directly linked to the amounts billed and the firm’s margin, and the hours worked by a lawyer, which are used to assess his or her individual performance.
Production hours: These represent time billed directly to the customer, or time allocated to a package or other billing method. They can be used to assess the profitability of a project or service, by comparing the time actually spent with the amount invoiced. By analyzing these hours, the firm can determine the actual margin level and adjust its rates or working methods accordingly.
Hours worked: Even if a lawyer works on a flat-rate basis, it’s crucial to keep track of the hours actually worked. These hours are used to assess the lawyer’s individual performance, efficiency and ability to manage time. By tracking these hours, the firm can identify areas for improvement, offer targeted training and, above all, remunerate the lawyer fairly. A lawyer who regularly exceeds his or her targets, or who manages his or her time efficiently, can be rewarded, which in turn boosts motivation and commitment.
The importance of time tracking in alternative billing methods
Even if a firm opts for alternative billing methods, such as flat-rate billing, time tracking remains essential. It enables us not only to assess the profitability of cases, but also to measure the performance of individual lawyers. Without such monitoring, the firm runs the risk of under- or over-estimating the value contributed by each lawyer, which can lead to imbalances in compensation and recognition.