How Increasing Employee Efficiency Can Reduce Write Offs
Software and professionals can be hamstrung by a lack of willingness to address lawyers’ long-established work patterns. Instead of institutionalizing efficiencies and systems, law firms have consistently turned to bill discounts and time write-offs to help address pressures from clients while maintaining long-established ways of completing client work. Write-offs may appear to be a like a retail discount, but are in fact much more damaging to a law firm’s bottom line profits. After accounting for fixed costs that are built into a billable rate (salaries, office space, etc.), discounts on an attorney’s billable time can be much steeper than they appear. If a firm’s overhead costs account for 50% of an attorney’s billable hour and then the fee is discounted 20%, only 30% of the fee goes to the bottom line.
In fairness, lawyer reticence to changing how they practice whether through technology and other means is partially based in reason. This area of legal technology has quickly evolved and it is not always clear where technologies like artificial intelligence, machine learning, and legal analytics are headed in the next few years or in the long-term. The “wait-and-see” mentality is prevalent. But even though the technology roadmap for some tools lacks total clarity, there are mature technology solutions currently available that can address law firm performance and can help firms move towards better staffing of matters, less time written-off, and more long-term financial success. Investing in these technologies can help firms transition to predictable cashflow and improved profits and away from heavy reliance on discounting that slashes bottom line profits.
Employee Efficiency. Beyond poor budgeting, firms often write-off time billed to a matter because of the human nature of billing based on time spent doing the work. There are myriad factors and considerations involved in the timekeeping process and firms should establish systems to allow for easy timekeeping and also oversight of timekeepers. A few of the most important factors are ensuring accuracy, tracking attorney performance, properly staffing matters, and understanding the reasons for the write-offs. Practice management tools can help with all of these issues.
Accurate Timekeeping. There are many stories of lawyers billing time in unusual or suspect ways – billing a client for thinking about a matter while in the shower, billing more the 24 hours in a day, or simply overbilling on tasks. While some of these examples are extremes, lawyers are financially incentivized to bill as much as possible under most firm compensation models and can lead to overbilling clients. Overbilling can occur due to non-malicious reasons, too, such as a lack of training or not following firm best-practices. Firms can leverage technology to ensure that timekeepers enter time on a consistent, contemporaneous basis which then allows matter managers to identify issues well before becoming a significant write-off issue.
Attorney Performance. With an easy-to-use billing system, firm management can track attorney and matter performance. Many systems provide intuitive dashboards where firm managers can see how long it typically takes associates to complete certain tasks and can identify lawyers that may be taking too much time. Oftentimes, these issues can be resolved with re-training the individual lawyer. This data can also provide insight into how matter teams and practices are functioning and where more staffing or investment may be needed to support firm clients. In a modern legal market with competition for clients and talent at an all-time high, firm management requires data that will enable them to make informed decisions.
Attorney Staffing. Firms can also use this data to see where the most resources are needed and to identify potential issues with staffing leverage on matter teams. A major driver of write-offs is related to having the wrong lawyer with the wrong level of experience assigned to work on a matter. A too senior attorney may wrack up a large bill due to her higher billable rate while a more junior attorney may bill many hours because he is less experienced and takes longer to produce the work. It can seem counter-intuitive – having the skilled lawyer do the work in less time can seem like the more efficient method to get the work done. The fact is that having more attorneys working on projects at the right level results in more hours billed at an appropriate hourly rate. This results in less time written-off and when it must be written-off, less of a hit to the firm’s profit on the matter. Even with proof that the leverage model can increase firm profits, firms have been slow to adopt better systems for attorney assignment. A firm management platform will help partners and managers identify the best ways to delegate work to ensure that the time billed fits the budget and that firm personnel are working efficiently.
Enhanced Write-off Procedures. Many firms handle write-offs by requiring supervising partners to explain why time was not billed to a client. These meetings can be a good enforcement mechanism to keep matter teams honest and focused on accurately billing. Too often, the real cause of the write-offs may be hard to ascertain because the firm lacks adequate data to identify the problem. Having the right tools at-hand will ensure that matter managers will have the right information needed to explain why time was written-off and will provide a clearer path to a solution.
Training New Lawyers. The legal profession has long used the apprentice model for training new lawyers. Fresh out of law school, new graduates starting at law firms would begin their careers by accumulating billable hours on document review or research projects. These new lawyers would learn by doing, at the expense of the client. In the last decade, clients have become more and more resistant to paying law firms for lawyers to learn on their dime. Clients want to pay for experienced lawyers, but firms still must train lawyers on all the many things law schools do not teach. Law firms are increasingly turning to technology for the document review and research projects, eliminating the traditional first-year lawyer tasks. This begs the question: how are new lawyers supposed to learn?
More and more firms are using learning management systems for new lawyers to help build basic skills more quickly and evaluating them on their skills as a part of the on-boarding process. If new lawyers can spend less time figuring out how to format a document because they have learned the process and passed a test indicating proficiency, they can contribute to client work more quickly with less time unbilled or written-off because the client refuses to pay for clerical tasks. Firm’s absorb the start-up cost for training, but quickly reap the benefits of this investment as new associates become productive members of matter teams much more quickly. With well-trained new associates producing billable work more quickly, the firm will write-off far fewer hours much sooner than under the traditional attorney apprentice training timeline.
Accurate Legal Billing (ALB) is an AI powered cloud based legal billing software that paves way to a highly automated system of financial management, leading to significant increases in the profit margin. Features of ALB include automated bill review while preparing invoices, preloaded UTBMS codes, intuitive suggestions online entries to maintain compliance with clients’ billing guidelines and more.
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