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Professional Liability Update

The information below is a continuation of our Professional Liability Update newsletter, Managing Fee Suits to Minimize Professional Liability Risk .

The Billing Process: How to Significantly Improve Cash Flow

A clear, consistent, and timely billing process can significantly improve cash flow: 

• Utilize Descriptive Timekeeping Entries.  Ensuring that invoices are itemized and clearly communicate the work performed can enhance firm cash flow and avoid fee disputes.
  
  Several one-hour entries of "reviewed file" can prompt a client to wonder if the lawyer isn't just trying to grab a few extra billable hours where she can.
  
  On the other hand, an entry of thirty minutes during which the lawyer "analyzed deposition testimony" or "read court ruling and planned next steps" explains just what the client is getting for the money.
  
  
• Utilize an Engagement Letter or Fee Contract that defines the costs and scope of the firm's services. It should lay out the billing and payment practices and procedures and make clear that you expect to be paid on a timely basis.
  
  
• Get your bills out on time and as soon as possible after the fees are incurred. This keeps the cycle moving, maintains a predictable pattern for the client which allows for the development of a payment routine, and helps keep the billings to a relatively reasonable size, making payments easier and more likely.
  
  Long delays between bills, or between work performed and the bill for that work, increase the possibility that the perceived value of the work will diminish as other events unfold, making a reasonable charge appear unreasonable and possibly prompting dispute.  
  
  The time to bill for drafting the summary judgment motion is immediately after the motion is drafted and delivered to the client, not six months later when the judge has denied the motion, the client is disappointed, and hindsight seems to suggest you should never have tried the motion in the first place.
  
  

• Retool your invoices for added clarity. Too often, legal bills look too much like a letter "informing" the client of the current balance rather than a "demand" for payment.
  
  Bills should look like the invoices they are. This can significantly improve cash flow for many firms. Invoices should clearly show a payment due date (ten days beyond the date of issue is a good rule of thumb). This format clearly communicates that payment is expected upon receipt of the bill and makes it easy for the client to comply on time.

Want to further reduce your professional liability risk? Check out our tips on improving the effectiveness of your client intake procedures and collection efforts, as well as performing a cost / benefit analysis before filing a fee suit.