The Cost of Billable Hours: How to Avoid Write Downs

Billable hours are a reality, whether in a large law firm or in-house counsel. These hours are vital to the practice of law and are also one of the most difficult tasks to manage. Managing time is a skill all in itself, and this blog post will help you avoid the dreaded writing down billable hours.

Billing clients is an important aspect of being a successful law firm. Accuracy is an essential quality when billing clients because they directly affect the firm's profitability. However, some attorneys go against this common practice and will write down hours because they feel the law firm client will balk at their bill because it was originally estimated to be far fewer hours than tracked.

Attorneys use billable hours to track their legal activities. The billable hours are sometimes written down when the hours taken to do the work will exceed client expectations.

How to avoid write-offs?

Technology: A best practice at a law firm is to not skimp on technology. The firm should consider using legal tech software solutions to track the time you spend on your case. Being able to submit invoices with better accuracy will help you stay on top of important deadlines and be prepared for billing on time.

Delegate: Your paralegal or legal assistant can do basic tasks such as reviewing the documents before they are sent to the law firm’s clients. Re-evaluate who does what in a law firm. Consider using paralegals to manage certain aspects of cases so you can both save time and money for the client.

Client Intake: Setting client expectations at the initial consultation can help to avoid confusion about the total amount that may be due at the end of the case. Making the expectations reasonable and realistic is a good way to avoid surprises and maintain positive client relations.

Billing Cycle: Additionally, setting a billing practice regularly and applying the retainer with complete transparency will also show the client the work as it is completed in real-time and promptly. There is a psychological benefit to the client in billing in these smaller amounts instead of one larger bill at the end of the case.

Compensation: Reward attorneys based on the realization rate. A realization rate is the measurement of the difference between recorded time and the percentage of that time paid by the law firm’s clients. It is a metric we track for our clients and accurately indicates a law firm’s profitability.

What are the consequences of write-offs?

It all comes down to simple math.

Let’s assume you have a $7,000 invoice that is written down to $5,500.

That is a $1,500 write-down. It's easy to see this as only approximately a 21% discount on your legal fees.

However, the true impact of the decision to write down these fees is much higher than that. If we assume that your profit margin is 35%, that significantly impacts your bottom line. There’s also the very real cost of replacing the value of services written off. Multiply that by all the attorneys at your firm – well, I don’t have to paint that picture.

This quote by the Lawyerist (my favorite podcast) really sums it up:

“You see, your clients don’t want to buy your time. They want to buy a solution to their problem. An invoice with a list of tasks tied together with time increments won’t help them see that solution.” Lawyerist

We hope you enjoyed our article about how attorneys are writing down billable hours and why it is something you want to address at your law firm. A few small workflow changes can set you up for a more profitable firm.

It's easy to lose track of how many hours are involved in a billable case or matter you are working on. By budgeting the hours upfront and paying attention to how many billable hours you are working on a case and by delegating tasks, you will be able to avoid spending as much time on unnecessary tasks and focus your time on getting enough billable hours in.

Please let us know if you need help analyzing the financial records at your firm. Contact us today @ 239-848-0001 Or book time on our calendar