Billing Tips
In most respects, billing is the sole profit driver completely in your control and the first step in controlling your billing cycle is setting expectations in the engagement letter:
1) State your billing and payment expectations up front. If possible, try to match corporate payment policies and timing.
2) Promote paperless billing, but be prepared to proactively address technical issues early on.
3) Identify a contact or person to call if there are questions about invoice receipt and payment schedules.
Many firms maintain a who’s who list of missing time entries. However, fewer firms act on the list and often serial repeat offenders are not even reprimanded. The discipline of getting time in on schedule needs to be a job requirement. We are all familiar with aging reports related to Unbilled and Accounts Receivable, but have you ever measured the number of days it takes to enter time into the billing system? I know of one example where a law firm built a custom report to calculate the number of days from transaction date to data entry date –resulting in fewer data entry lags. Electronic and remote time entry tools have helped to improve and speed up the entry process, but in this economy every little bit helps.
Prebills should include all of the necessary information for the billing attorney and should be generated according to a published schedule. Likewise, billing attorneys should review and turn the bills around in a timely manner.
Identifying Billing Opportunities
Responsibility for billing falls to the billing attorneys, however law firm managers can also impact the billing cycle by reviewing unbilled time and looking for billing opportunities. In theory, every unbilled hour is an opportunity, but billing every hour on the spot is not realistically or logistically possible. Given limited resources, it is best to focus on trend outliers or clients and billing attorneys with billing practices outside of accepted thresholds.
The above report is a useful tool for identify billing opportunities because it spotlight clients or billing attorneys with large unbilled balances, and it provides additional information as well. By looking at the Percent of Total Unbilled, firms can assess the makeup of their unbilled balances. Are a handful of clients causing inventory to grow to unacceptable levels or is the growth precipitated by a large number of smaller clients? Will addressing the billing issues associated with your largest clients have the biggest bang for the buck? Can setting a threshold or goal that no single client or billing attorney exceeds a stated percentage of your total unbilled drive better inventory management? Another useful metric is Unbilled as a % of Total Inventory. This measure provides insight into the total revenue cycle and can point out potential bottlenecks in the collection process. Age of Unbilled is a common measure that is most useful when measured against a standard. These standards should encompass not only firm policies, but also area of law practices. Lastly, use the YTD Billed Amt to assess whether a problem exists with the client. For large aged balances, ascertain if there is a recurring or one time issue.
Analyzing Billing Trends
Beyond opportunities, productive inventory management should also include analyzing billing trends. This trend analysis is most often applied to Age of Unbilled, Days of Unbilled, and Bill Speed.
Age of Unbilled measures the numbers of days since the work date. When it is high or increasing, WIP management may be deteriorating with material aged invoices continuing to grow older. When it is low, WIP management is good, although significant write downs of old WIP can influence the age.
Days of Unbilled, unlike age, measures the level of inventory relative to the average billing activity. When it is high or increasing, production is growing at a faster rate than billing activity. When it is low or decreasing, aggressive inventory management is causing bills to get out the door faster than new work is being put into unbilled.
The last trend is Bill Speed or the dollar weighted average number of days from work date to bill date. Simply stated, the number of days it takes to get your bills out the door. Obviously, the fewer number of days the better, but keep in mind how billing only recent work and leaving the old stuff in unbilled can skew the bill speed calculation (bill speed can only be calculated on billed time).
There is no silver bullet for WIP inventory management. But applying some common sense billing practices, actively analyzing billing opportunities, and keeping an eye on billing trends can reap big rewards on the collection side.
–Rick Rawls
Rick Rawls is a Senior Business of Law Consultant for Redwood Analytics/Lexis Nexis
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