1. Chapter 8 Billing and Financial Management

2. Billing Should Be Regular and Frequent
Monthly billing is the most common method of billing.
Clients prefer smaller monthly bills.
A client’s perception of the value of legal services diminishes with time.

3. Bill Must Be Effective Descriptive bills Bills that are correct
Errors in math
Typographical errors
Client perceives the value to the service
“Nickle and Dime” charges

4. The Billing Process Timesheets prepared by attorney/paralegal
Data entry into time and billing progam
Pre-bill generated for review and edit
Final bills generated
Management Reports generated
Aged accounts receivable
Productivity reports
Other reports

5. Statutory Requirements for Legal Bills
B&P Code section 6148
All bills must clearly state:
Amount of the bill
The rate charged
The basis for the calculation of charges and costs
Must be furnished to client 10 days following request or every 30 days

6. “Block Billing”
Where multiple tasks are billed as a single entry of time and charges
Example:
“Research, draft motion for continuance, conf. with attorney Jones re: hearing date and attend hearing on motion for continuance –
25hours $6,250.

7. Elements of a Legal Bill
Name of the case
Billing period
Date of the work
Description of the work
Time increment
Name of person performing the work
Hourly rate
Cost of the work
Itemization of costs
Total costs
Total fees and costs
Payment terms

9. Common Unethical Billing Practices
“Padding”
Applying a client’s funds to a disputed fee
Trust account transfers
Charging more than a client agreed to pay
Charging for services not rendered to a client

10. Common Billing Problems
Vague descriptions
Perceived poor work
(review and revise)
Nickel-and-dime billing
Team churning
Interoffice conferences
Errors in arithmetic
Sent to wrong person or address
Padding
Clerical work
Block billing
Billing for costs not agreed to
Delegable tasks – task performed by appropriate person

11. Computerized Billing and Time Accounting
Most firms use some variation of computerized time and billing software
Traditionally these were in-house software systems
Maintained by the firm
SaaS (Software as a Service)
Hosted by the vendor
Available over the internet
Vendor provides maintenance and support
Vendor charges monthly fee

12. E-Billing
E-billing – a process that allows invoices to be presented to the client over the internet.
Typical e-billing flow chart:

13. Law Firm Financial Management

14. Profitability Factors
Direct
R ates
U tilization
L everage
E xpenses
S peed
Indirect
S trategy
C ulture
O rganization
R eward systems
E Environment

15. Two Types of Expenses Compensation Operating Associates and paralegals
Administrative staff
Employee benefits
Operating
Occupancy costs
Financing costs
Office operating costs

16. Common Expense Catagories
Advertising
Bank Charges
Books and Publications
Costs Advanced
Depreciation (non-cash)
Employee benefits
Equipment Rental
File Storage
Insurance
Liability
Malpractice
Workers Compensation
Interest
Travel/Meals
Office Supplies
Professional Dues
Rent
Salaries
Taxes
Employment
Property
Telephone
Temp. Services
Utilities

17. Accounting Systems = Accounting system tracks Income Expenses
Accounts receivable
Accounts payable
Provides additional management reports
Profit and loss statements
Balance sheets
Cash flow reports =

18. Profit & Loss Statement
Income: Income – legal fees $1,350,247 Total Income $1,350,247 Expenses: Depreciation* 25,250 Salaries 550,000 Rent 400,000 Taxes 35,000 Advertising 20,000 Interest 15,000 Office Supplies 27,000 Total Expenses $1,072,250 Net Income $ 277,997

19. Balance Sheet
, Assets Current Assets: Cash in bank $75,000 Client Trust account 10,000 Fixed Assets: Office equipment $100,000 less: Depreciation (20,000) Vehicles 60,000 less: Depreciation (5,000) Total Assets $220,000 (Cont.)

20. Balance Sheet (cont.)
Liabilities and Owner’s Equity Current Liabilities: Bank Line of Credit $50,000 Accounts payable 7,500 Other Liabilities: Client trust liability $10,000 Total Liabilities $67,500 Owner’s Equity $152,500 Liabilites and Owners Equity $220,000

21. Balance Sheet Formula
Assets = Liabilities + Owner’s Equity

22. Cash Flow Statement
A report that details the cash received and cash expended by the business for each month.
Composed of:
Beginning cash on hand
Cash receipts during month
Cash paid out during month
Ending cash on hand

23. Accounting Methods
Cash Accounting: Receipts are recorded on books upon receipt Expenses are recorded on books when paid Billings or WIP are not reflected on books Most small firms use cash method accounting Accrual Accounting: Records income when earned Records expenses when incurred

24. Types of Accounting Systems
Stand alone systems
Quick Books
Peachtree
Sage
Integrated systems
Systems that include billing and accounting in a single system

25. Budgeting Process Project total overhead for the year
Personnel costs/compensation
Operating expense
Project number of billing attorneys/paralegals and target rate for each
Estimate number of billable hours per year
Calculate realization rate - % collectable
Project gross billings or gross income
Adjust the rate, billable hours or overhead to balance budget

26. Law Firm Financial Ratios
Annual billable time
Attorneys (partner) income as a percentage of billings
60-65% of realized billings
Associates salary as a percentage of billings
Salary should be 1/3 of billings
Not realized billings
Realization Rate
Percent of bills collected
Target is 95% - most firms 80-90%
Aged Accounts Receivable
Collection rate is 67% of accounts over 120 days old

27. Law Firm Banking Bank Accounts Credit Facilities
General Operating Account
Client Trust Account
Payroll Account
Costs Advanced Account
Credit Facilities
Lines of Credit
Equipment Loans