Billing 101: Introduction to Billing Methods (Part 2)

In Billing 101: Introduction to Billing Methods (Part 1), we discussed the terminology and structure behind hourly, contingency, and flat rate billing. But now that you have the invoice total, how do you plan to bill for it?

👉 Note: While this guide is software-agnostic, Tabs3 Billing users can get how-to information about each of these methods in the Billing Methods Guide.

There are multiple ways to bill for any fee structure

The fee structures above are about what the client owes the firm. The fee agreement also lays out when the client must pay and/or receive statements.

Billing/statement cadences vary

One-time billing is the simplest billing scenario. The client owes one all-inclusive fee, plus costs, minus discounts. The bill might be sent at the outset, at the end of the matter, or at another time.

Recurring periodic billing/statements can be used for any fee structure, including:

• A strictly hourly matter where all fees and costs are billed monthly.
• A flat fee paid in more than two or more installments.
• An ongoing flat fee engagement where the flat fee renews every month.
• Monthly information-only statements for a contingency case.

Threshold billing is waiting to bill until fees or costs reach a target amount. Instead of billing every month, you only bill when there is enough work-in-progress or expenses to meet the threshold. Your firm might also send information-only statements during cycles where the threshold is not reached.

Some bills are paid from a retainer

Sometimes you will send a bill to the client and wait for payment. Often, however, you can bill against a retainer.

A retainer is a lump sum payment to a firm.

• A security retainer is an advance payment on the client’s fees. It does not belong to the firm until the firm earns it, so it is held in the trust account. The client may need to replenish the retainer as fees are earned, or pay a recurring retainer.
• Clients can also pay a general retainer to reserve capacity at the law firm. It is considered earned right away, so it does not go into the trust account. The client must pay for the actual services separately.

The details of each retainer are set out in the fee agreement. There are ethical rules that govern how law firms handle retainers, so it is important to understand the exact terms of each retainer.

In the billing function, you might interact with retainers in several ways:

• Billing monthly for services completed, but paying the bill from the retainer instead of waiting for the client to send payment. The firm transfers money from the trust account into the operating account, and sends the client an informational statement.
• Asking the client to replenish their retainer balance, either periodically or when a certain threshold is reached.
• Refunding unearned retainer money to the client.
• Billing for a general retainer.

Some bills might be split among multiple entities

In some matters, you may need to apportion a bill among several groups. This can come up in transactional cases that involve multiple business units of a single company, or when a lawyer represents multiple clients on the same matter.

The fee agreement will lay out the details of the split. Both fees and costs can be split, and the percentages vary from case to case. You might also need to display nonbillable transactions on multiple invoices, or allocate credits among multiple clients.

Task-based billing uses codes to enable financial tracking

If your firm serves insurance companies or large corporations, you may need to do additional setup when opening a file. Sometimes this function is handled by a specialized e-billing clerk. When you add fee entries for task-based billing clients, you must include certain codes that describe the work done. This allows the client to track the fees and costs at a granular level. The bill is also submitted electronically.

Discounts, write-downs, write-ups, and write-offs impact totals

Reductions or increases in the bill are the last piece of the puzzle. Firms use a variety of words for these concepts, but the concepts themselves are the same across almost every firm.

• A discount means a reduction of the entire bill, usually by a percentage. Discounts can be one-time or recurring.
• A write-down means reducing the amount of time billed for a task, or removing certain time entries completely. Partners typically do this during statement review/pre-billing. It can also happen during collections, in which case you may need to create a revised statement. You may also be asked to run reports about write-downs, because consistent underbilling can undermine cash flow and reduce partner compensation.
• A write-up means increasing the amount billed beyond what is included in the work-in-progress. This might come up in contingency cases, where the firm is entitled to a certain percentage of a settlement even though it exceeds the amount the firm would have billed on an hourly case.

A write-off means forgiving an unpaid bill (or part of it). Write-offs have tax consequences, so deciding to write off debt is a strategic decision.

Questions to answer when setting up a new case

The following questions can help you get prepared to set up a new case. Depending on your firm, you might get this information from the fee agreement, from someone in your department, from the attorney, or some combination of those. You may want to add other questions that reflect your firm’s unique file-opening process.

For all matters. Detailed questions are in the following sections.

• Will the bills go to a single entity, or will they be split?
• Does this matter require task-based billing?
• Will we apply any thresholds for billing in this matter? If so, what are they?

For matters with retainers.

• Is this a security retainer that will be applied to fees and costs as they accrue? (If not, verify that it is a general retainer and should be placed in the operational account.)
• Is the retainer a one-time payment, or will the client need to replenish it? If so, when should the client replenish it?
• Will the client pay a retainer every month (or at some other cadence)? If so, is there a threshold at which we need to collect fees in another way, like hourly billing?
• What happens to the retainer at the conclusion of the matter (i.e., balance refunded or retained as earned fee)?

For matters with split billing.

• How will fees and costs be split?
• How will credits and nonbillables be split?
• How will advance fees or retainers be split?
• For fees, do you want to split the amount due (hours x rate), or split the hours and then apply rates to calculate the amount due?

Tabs3 makes every fee structure and billing methodology easier

If your firm is not using Tabs3 Billing yet, we would love to show you how easy even complex billing can be. The platform offers virtually unlimited billing options, with smart shortcuts to save you time. You can even handle the statement approval process entirely within Tabs3 Billing with our pre-billing feature.

👉 Set up a personalized demonstration with our experienced trainers today.