How Monthly Billing Bonuses Could Potentially Reduce Firm Net Profit Margin
Many US firms are still offering monthly billing bonuses to attorneys based on a monthly billing quota.
For law firms which are working for clients who require them to e-bill and in compliance with their billing guidelines, this practice of paying monthly billing bonuses could lead to cash flow issues for the firms especially if they are not using a platform like ALB AI which helps the attorneys to make their entries compliant as they bill.
As a growing number of law firms’ clients are moving to e-billing and using e-billing companies to monitor compliance with their billing guidelines. These e-billing vendors are using AI platforms to check for compliance. Law firms on the other hand are still using outdated billing platforms and rely on their billing team to ensure compliance with clients’ billing guidelines.
A recent study shows that the average reduction or invoice appeal in 2020 was 20%.
You are probably asking yourself what is the connection between this and monthly billing bonuses reducing the net profit margin?
Allow me to illustrate this through an example.
Law firm Smith Robinsony as part of its compensation package offers its Sr Associates and Partners monthly billing bonuses. This same law firm is using IACS as a billing system. This system has no ability to ensure that the entries by the attorneys are compliant with clients’ billing guidelines. In the month of November, an attorney at the firm billed 189 billable hours at $350/ hour, which is $85,050 in supposed revenue. The firm then pays the attorney a 7.5% billing bonus for that month. That is $6,379.However, when the firm billing team prepares and submits its invoice into the bill review vendor platform, the invoice is reviewed and reduced for non-compliance citing reasons such as administrative tasks, paralegal tasks, travel time in violation of guidelines, block billing, and all this amount to $25,515 ($85,050*30%). After several back and forth between the firm billing department and the bill auditor, the final invoice is settled at $61,000
The law had paid its partner a monthly bonus based on $85,050 instead of the final invoice amount of $68,040. Even thought the firm appealed the final invoice was still reduced by 20%. As the attorney bonus was calculated based on non-compliant entries the firm end up paying the attorneys more than they should have. Had the firm allowed ALB AI to integrate with their billing platform, all the non-compliant entries would have been flagged by ALB AI, which then guides the attorney as to how to make them compliant prior to these being billed. Resulting in the firm paying for bonuses on truly billable time entries.
About Andre Wouansi
Andre Wouansi, Founder/CEO at ALB Andre is considered a veteran in the legal industry. Prior to ALB, for two nearly decades Andre Wouansi was one of the owners of a global e-billing company that helped Insurance companies, TPAs, and Self-Insured corporations “control” they are legal to spend with e-billing software designed to strictly enforce billing rules and guidelines. Andre’s previous company reduced nearly $2 billion dollars off law firms’ invoices.
ALB was created in 2018 to help law firms easily comply with clients’ billing guidelines and prevent e-billing reductions, which lead to delay in invoices processing and payment.
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