Today, in most law firms, billing is a broken process. It’s hugely manual with a lot of paper or digital paper with 12 or more people involved in the creation of the bill. It’s time-consuming and there’s huge room for error. It’s also completely opaque. Owners don’t know how many bills are in play during the month and not until after month-end do they know the value of bills going out the door.
Old-world billing consumes five to ten days a month of front office worker time and floods revenue earners with billing details when they should be billing work-in-progress. People are making big financial decisions without guard rails, writing down time with no controls. Firms are taking a top line hit in lost revenue and an internal hit because there is no capture of the decision-making about why time is being written off. The costs from such a broken process are literally huge. Larger firms can lose millions of dollars a month in direct and indirect costs from this broken process.
The Covid pandemic blew the issues around billing wide open and exposed how painfully manual the process is. Firms in lockdown, working from home offices, were unable to generate bills without people to physically go into the office, create PDFs and Fedex to global locations, then coordinate the resulting marked up changes. A laborious and already broken process became even more dysfunctional.
The firms who were advanced in terms of adopting billing automation have been largely insulated from the problems faced by most firms. Any customers who were thinking about billing automation seized the opportunity. To quote one such customer: “We’ve danced around this for years, but Covid was a circuit breaker. We just had to do it. From a cultural change perspective billing automation is even harder than time recording. But the benefits from just 80 percent of the firm playing ball have been mind-boggling”.
So what does a modern process look like? And more important, how do firms benefit? The objective is billing is clear: to streamline the process of turning knowledge work into cash.
First there’s automating the bill production cycle to minimize the administration load, minimizing the work required by non-fee earners and minimizing the time spent by fee earners. Either side of that is reducing time and cost of collections once the bill has gone out. And there’s ensuring that all bills comply with the terms of engagement agreed with the client.
My experience is that a large firm can get immediate benefit from targeting the ‘at least’ 20 percent of revenue lost to ‘leakage’ from time being written down during the billing cycle. Further significant cash flow benefits are quickly achieved by reducing payment delays from bills not being compliant because of disconnects between billing and client terms. Compliant billing reduces bill queries and speeds settlement. Compliance is a huge factor in client satisfaction and retention.
Also billing is used as a proxy for project management. Client communication should be separate from the billing – which should be frictionless. The culture needs to change, divorcing managing the cash flow process from delivering the legal services.
The strategic objective should be to produce the bills your customers want to pay. Making sure the value creation engine inside the law firm is aligned to your clients’ needs. The bill is simply capturing that value and turning it into cash.