Billing and Collections

Law firm managing partners and top-level executives continue to face a marketplace of increased competition and higher client scrutiny toward fees and expenses. As the competitive landscape in the legal industry evolves, and the financial demands of legal customers strengthen, law firms are being forced to adapt their business practices. Firms are looking for new ways to address the needs of their clients, and are focused on delivering high-quality product and outstanding customer service, while still delivering improvements to their bottom line. Optimizing processes, redefining service portfolios, recruiting top talent, and investing in technology are some of the many ways firms are looking to lower costs and remain competitive.

Opportunities exist in the back office for law firms to reduce administrative expenses, improve cash management, and increase staff performance to optimize and deliver exceptional customer service. Trends suggest that by focusing on the billing and collections function, a firm may find success in achieving these objectives. The complexity and expectations of billing and collections at law firms have increased significantly over the last several years. The evolution is driven by client demands such as:

• Strenuous pre-approval and payment processes;
• Proliferated and expanded use of outside counsel guidelines; and
• Increased use of multiple e-billing platforms.

Of course, it is not all about customer service; there are incentives for law firms to do a back-office overhaul. For example, optimizing the billing and collections function can help improve work-to-bill cycle times and minimize days sales outstanding. To achieve improved results, firms need to focus on developing policies and procedures, and implementing technologies that will produce and deliver straightforward bills to their clients. When striving to meet this goal, billing and collection functions face challenges in their ability to:

• Comply with all time and expense rules specified in clients' outside counsel guidelines (including but not limited to how attorneys: a) spend time, b) record time and expenses, and c) are pre-approved);
• Establish and maintain client-specific rate codes in internal billing and external e-billing systems;
• License and support a variety of e-billing platforms utilized by their broad client base;
• Issue invoices and collect payments in a timely fashion; and
• Track and resolve client invoicing issues, such as gathering approval from various client end-points and reconciling matter-related fees and expenses.

While redefining a firm's infrastructure may seem like a daunting task, improving billing and collection capabilities and standardizing procedures will pay significant dividends in both the short and long terms. Key areas of focus for this type of initiative include; policies and procedures, organizational structure, and the role of technology.

Policies and Procedures

Law firms are looking for ways to standardize their billing and collection practices across their client base, and concentrating on ways to deliver high-quality customer service. Effective policies and procedures focus not only on process, but also on defining metrics that allow business managers to measure/track performance to ensure that implemented strategies are successful. Furthermore, business managers must work to ensure that staff members are held accountable for their responsibilities, such as complying with time entry deadlines, invoice generation policies, and other billing and collections-related elements. Opportunities exist for firms to integrate best practices into a variety of processes, including new business intake, time entry, and expense reimbursement/management procedures. Attention to these areas helps to keep the billing and collections process transparent, with a potential benefit of reducing effort and time spent during month-end close, as well as invoice approval follow-up.

Firms are evaluating their time entry requirements and methodology. More specifically, law firms are now realizing how an increase in frequency of reported time can enhance their revenue predictability/visibility, as well as quickly distinguish utilization strengths and weaknesses. A billing and collections survey conducted by the authors' firm, Huron Consulting Group, in Q4 2008 showed that only 21% of interviewed law firms have established policies and procedures that require daily time entry from their billable staff. The remaining 79% ranged between weekly and monthly time entry requirements [See Figure 1.1]. Huron Consulting Group's experience in the legal industry has seen a trend that leading firms are migrating toward the practice of daily time reporting.

[IMGCAP(1)]

Enforcing stricter time entry policies, implementing the appropriate automated process solution, and increasing the frequency with which billable staff members are required to report hours shortens the gap between hours worked and hours billed. This reduction in work-to-bill cycle times allows for a smoother and more timely invoicing process in which fees allocated to a matter are “real-time precise” and better correlated to “still fresh in mind” work product delivered to the client. Also, by holding billable professionals accountable for daily time entry, law firms minimize the risk of staff losing track of their time. Instead of having to charge “lost hours” to a non-billable matter number, the reduced time entry cycle will help ensure that all hours are billed to the client, as appropriate.

Organizational Structure

To drive optimal performance of the billing and collections function, law firms need to work hard in redefining staff roles and responsibilities. The goal is to strategically align resource skills with desired responsibilities in an effort to consolidate operations and streamline workflow. When evaluating organizational structures, firms are trending toward implementing a centralized approach that involves regional/functional segregation of specific responsibilities. Their primary focus is to minimize attorney billing and collections efforts and better leverage administrative staff to raise functional productivity.

When looking at the many moving parts that contribute to the optimized organizational performance of a billing and collections function (staff proficiency, communication flow, definition of roles, etc.), special attention should be paid to the development of infrastructure. There are a variety of methods that today's law firms are using to assign accounts and responsibilities to their billing and collections staff. Some firms choose to assign based on geography, while others assign based on law practice. Firms are, however, beginning to assign billing and collection responsibilities based on clients. Results from Huron Consulting Group's Q4 2008 survey depict how other firms have implemented various approaches [See Figure 1.2].

[IMGCAP(2)]

While staff assignment methodologies differ from one firm to the next, an observed commonality spread across multi-disciplined law firms is that methodology applied to one side of the billing and collections process is not applied to the other. When Huron surveyed leaders in the law firm community, it was found that only one-third of responding law firms had centralized billing tendencies, while nearly two-thirds committed to a centralized collections function [See Figure 1.3].

[IMGCAP(3)]

By defragmenting widely dispersed staff responsibilities and promoting synergies gathered from both sides of the process, law firms can apply a holistic approach to billing and collections, which in turn will help standardize procedures, develop consistencies in service, and steer performance in the direction of desired firm metrics and expectations.

The Role of Technology

Technology can be an integral element in the successful performance of law firms. It is often used to establish controls that enforce compliance. Technology is leveraged to streamline intricate processes and standardize operations. Most importantly, technology is meant to increase productivity while making everyone's job easier. As firms continue to lean on software for various parts of their business, (such as new business intake, time and expense entry, cost recovery systems, billing, accounts payable, etc.) the complex interaction between both internal and external systems can sometimes limit a firm's ability to take full advantage of the technology's potential.

One technology area where law firms are dedicating a lot of time and energy is in the field of e-billing. As more clients move toward e-billing and the use of outside counsel guidelines, law firms face the challenge of adapting their billing practices to accommodate varying needs from their broad range of clients. These challenges are resulting in increased operational staff workloads. Often manual processes are leveraged to ensure that a law firm's invoicing methods are compliant with each unique set of client requirements. Emerging new technologies are beginning to address this issue by helping law firms bridge the gap between their billing processes and their clients' accounts payable systems. Firms can now leverage hub technology to help them translate billing outputs that communicate across multiple platforms used by their clients.

Conclusion

Amid procedural and organizational changes and the integration of technology, a billing and collections project comes with a degree of sensitivity. Law firms must build and execute an appropriately balanced strategy to incorporate leading functional practices with the firm's existing culture. By assessing operations around billing and collections, and implementing best practices, law firms empower themselves to:

• Reduce days sales outstanding (“DSO”) and improve cash flow;
• Optimize collections to better translate utilization to dollars earned;
• Build staff synergies to maximize performance;
• Drive operational productivity to reduce administrative costs; and
• Provide best-in-class customer service.

Bret Baccus, a member of this newsletter's Editorial Board, is a Director in Huron Consulting Group's Legal Consulting practice. His team, which includes contributor Andrew Gastwirth, provides services that add value to corporate legal departments and law firms by helping to reduce legal spend, enhance client service delivery, and increase operational effectiveness. Baccus can be contacted at bbaccus@huroncon sultinggroup.com.

Law firm managing partners and top-level executives continue to face a marketplace of increased competition and higher client scrutiny toward fees and expenses. As the competitive landscape in the legal industry evolves, and the financial demands of legal customers strengthen, law firms are being forced to adapt their business practices. Firms are looking for new ways to address the needs of their clients, and are focused on delivering high-quality product and outstanding customer service, while still delivering improvements to their bottom line. Optimizing processes, redefining service portfolios, recruiting top talent, and investing in technology are some of the many ways firms are looking to lower costs and remain competitive.

Opportunities exist in the back office for law firms to reduce administrative expenses, improve cash management, and increase staff performance to optimize and deliver exceptional customer service. Trends suggest that by focusing on the billing and collections function, a firm may find success in achieving these objectives. The complexity and expectations of billing and collections at law firms have increased significantly over the last several years. The evolution is driven by client demands such as:

• Strenuous pre-approval and payment processes;
• Proliferated and expanded use of outside counsel guidelines; and
• Increased use of multiple e-billing platforms.

Of course, it is not all about customer service; there are incentives for law firms to do a back-office overhaul. For example, optimizing the billing and collections function can help improve work-to-bill cycle times and minimize days sales outstanding. To achieve improved results, firms need to focus on developing policies and procedures, and implementing technologies that will produce and deliver straightforward bills to their clients. When striving to meet this goal, billing and collection functions face challenges in their ability to:

• Comply with all time and expense rules specified in clients' outside counsel guidelines (including but not limited to how attorneys: a) spend time, b) record time and expenses, and c) are pre-approved);
• Establish and maintain client-specific rate codes in internal billing and external e-billing systems;
• License and support a variety of e-billing platforms utilized by their broad client base;
• Issue invoices and collect payments in a timely fashion; and
• Track and resolve client invoicing issues, such as gathering approval from various client end-points and reconciling matter-related fees and expenses.

While redefining a firm's infrastructure may seem like a daunting task, improving billing and collection capabilities and standardizing procedures will pay significant dividends in both the short and long terms. Key areas of focus for this type of initiative include; policies and procedures, organizational structure, and the role of technology.

Policies and Procedures

Law firms are looking for ways to standardize their billing and collection practices across their client base, and concentrating on ways to deliver high-quality customer service. Effective policies and procedures focus not only on process, but also on defining metrics that allow business managers to measure/track performance to ensure that implemented strategies are successful. Furthermore, business managers must work to ensure that staff members are held accountable for their responsibilities, such as complying with time entry deadlines, invoice generation policies, and other billing and collections-related elements. Opportunities exist for firms to integrate best practices into a variety of processes, including new business intake, time entry, and expense reimbursement/management procedures. Attention to these areas helps to keep the billing and collections process transparent, with a potential benefit of reducing effort and time spent during month-end close, as well as invoice approval follow-up.

Firms are evaluating their time entry requirements and methodology. More specifically, law firms are now realizing how an increase in frequency of reported time can enhance their revenue predictability/visibility, as well as quickly distinguish utilization strengths and weaknesses. A billing and collections survey conducted by the authors' firm, Huron Consulting Group, in Q4 2008 showed that only 21% of interviewed law firms have established policies and procedures that require daily time entry from their billable staff. The remaining 79% ranged between weekly and monthly time entry requirements [See Figure 1.1]. Huron Consulting Group's experience in the legal industry has seen a trend that leading firms are migrating toward the practice of daily time reporting.

[IMGCAP(1)]

Enforcing stricter time entry policies, implementing the appropriate automated process solution, and increasing the frequency with which billable staff members are required to report hours shortens the gap between hours worked and hours billed. This reduction in work-to-bill cycle times allows for a smoother and more timely invoicing process in which fees allocated to a matter are “real-time precise” and better correlated to “still fresh in mind” work product delivered to the client. Also, by holding billable professionals accountable for daily time entry, law firms minimize the risk of staff losing track of their time. Instead of having to charge “lost hours” to a non-billable matter number, the reduced time entry cycle will help ensure that all hours are billed to the client, as appropriate.

Organizational Structure

To drive optimal performance of the billing and collections function, law firms need to work hard in redefining staff roles and responsibilities. The goal is to strategically align resource skills with desired responsibilities in an effort to consolidate operations and streamline workflow. When evaluating organizational structures, firms are trending toward implementing a centralized approach that involves regional/functional segregation of specific responsibilities. Their primary focus is to minimize attorney billing and collections efforts and better leverage administrative staff to raise functional productivity.

When looking at the many moving parts that contribute to the optimized organizational performance of a billing and collections function (staff proficiency, communication flow, definition of roles, etc.), special attention should be paid to the development of infrastructure. There are a variety of methods that today's law firms are using to assign accounts and responsibilities to their billing and collections staff. Some firms choose to assign based on geography, while others assign based on law practice. Firms are, however, beginning to assign billing and collection responsibilities based on clients. Results from Huron Consulting Group's Q4 2008 survey depict how other firms have implemented various approaches [See Figure 1.2].

[IMGCAP(2)]

While staff assignment methodologies differ from one firm to the next, an observed commonality spread across multi-disciplined law firms is that methodology applied to one side of the billing and collections process is not applied to the other. When Huron surveyed leaders in the law firm community, it was found that only one-third of responding law firms had centralized billing tendencies, while nearly two-thirds committed to a centralized collections function [See Figure 1.3].

[IMGCAP(3)]

By defragmenting widely dispersed staff responsibilities and promoting synergies gathered from both sides of the process, law firms can apply a holistic approach to billing and collections, which in turn will help standardize procedures, develop consistencies in service, and steer performance in the direction of desired firm metrics and expectations.

The Role of Technology

Technology can be an integral element in the successful performance of law firms. It is often used to establish controls that enforce compliance. Technology is leveraged to streamline intricate processes and standardize operations. Most importantly, technology is meant to increase productivity while making everyone's job easier. As firms continue to lean on software for various parts of their business, (such as new business intake, time and expense entry, cost recovery systems, billing, accounts payable, etc.) the complex interaction between both internal and external systems can sometimes limit a firm's ability to take full advantage of the technology's potential.

One technology area where law firms are dedicating a lot of time and energy is in the field of e-billing. As more clients move toward e-billing and the use of outside counsel guidelines, law firms face the challenge of adapting their billing practices to accommodate varying needs from their broad range of clients. These challenges are resulting in increased operational staff workloads. Often manual processes are leveraged to ensure that a law firm's invoicing methods are compliant with each unique set of client requirements. Emerging new technologies are beginning to address this issue by helping law firms bridge the gap between their billing processes and their clients' accounts payable systems. Firms can now leverage hub technology to help them translate billing outputs that communicate across multiple platforms used by their clients.

Conclusion

Amid procedural and organizational changes and the integration of technology, a billing and collections project comes with a degree of sensitivity. Law firms must build and execute an appropriately balanced strategy to incorporate leading functional practices with the firm's existing culture. By assessing operations around billing and collections, and implementing best practices, law firms empower themselves to:

• Reduce days sales outstanding (“DSO”) and improve cash flow;
• Optimize collections to better translate utilization to dollars earned;
• Build staff synergies to maximize performance;
• Drive operational productivity to reduce administrative costs; and
• Provide best-in-class customer service.

Bret Baccus, a member of this newsletter's Editorial Board, is a Director in Huron Consulting Group's Legal Consulting practice. His team, which includes contributor Andrew Gastwirth, provides services that add value to corporate legal departments and law firms by helping to reduce legal spend, enhance client service delivery, and increase operational effectiveness. Baccus can be contacted at bbaccus@huroncon sultinggroup.com.