If revenue is the lifeblood of a law firm, the billing function is its beating heart. Whether you specialize in billing or juggle many administrative duties, the questions you ask when opening a new file set the stage for successful billing and collections.

This guide offers a deep dive into definitions and fee structures. It wraps up with a list of questions to help you navigate any billing setup, no matter how complicated. Part 2 of this series will delve into how to bill for various fee structures.

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.

An overview of billing terminology

Fee structures are broad categories of legal fees, like hourly, contingency, flat rate, or hybrids. 

Fees compensate the firm for its legal work, like appearing in court or preparing a document. The most common fee structure is hourly. For an hourly matter, the fees are the number of hours each timekeeper worked, multiplied by the timekeeper’s rate.

Costs compensate the firm for its expenditures, like copying files or paying court filing fees. Costs are divided into expenses and advances. Expenses represent a portion of the firm’s overhead, like copying files on the firm’s photocopier. Advances are actual payments the firm makes on behalf of a client, like filing fees paid to the court.

Discounts reduce the bill. They can apply to the entire bill, or a partner might write down (not charge for) part of the fee.

Nearly every matter has a written fee agreement, which says how the fee will be calculated, who is responsible for costs, the billing cadence, and other agreements about representation. It may also be called an engagement letter, engagement agreement, fee contract, etc.

Depending on your firm’s size and file-opening process, you may get the actual fee agreement when you are setting up a new matter or only the information related to billing.

Fee structures can be simple or complex

The most common fee structures are hourly, contingency, and flat fee. But there are also hybrids that include any two of those fee structures, or even all three.

Hourly fee structure

Most transactional and defense litigation matters are billed hourly, as are most family law and criminal defense cases. Timekeepers track the number of hours they spend on a matter, and the fee is the number of hours multiplied by the appropriate rate. Clients are usually billed monthly for the fees incurred in the prior month.

For instance, if Attorney A records 5.0 hours at $250 per hour and Paralegal B records 6.0 hours at $150 per hour, the total fees are $2,150 ($265 x 5.0 plus $150 x 6.0).

Tips and tricks for hourly fee structures

• The client is almost always responsible for costs in hourly matters.
• Most discounts are write-downs by the reviewing attorney during the statement review/pre-billing process.
• While the billing rate is set by the fee agreement, you may not have access to the actual fee agreement. Some firms assign multiple rates to a single timekeeper, or set rates based on role/seniority. You may need clarification to choose the correct rate.
• Some matters may have contingency fees or flat fees in addition to hourly fees, so it might make sense to double-check whether an hourly case is purely hourly. For many firms, however, it is rare to see anything other than straightforward hourly billing.

Contingency fee structure

Contingency fee structures are most common in plaintiff-side litigation, like personal injury or civil rights. In a pure contingency case, the firm is only paid if the client recovers money, either through settlement or winning at trial. These cases typically give the attorney a percentage of the recovery, like this:

A schoolteacher experiences sexual harassment at work and engages the firm. The teacher and the firm agree that the firm will initially pay for all costs and will not charge an hourly rate. If the teacher’s claim is successful, the firm will receive 30% of whatever she was awarded and she will reimburse the firm for costs. If she recovers nothing, the firm will not bill her for fees or costs.

After six months of work, the case settles for $100,000. The firm has incurred $5,000 in costs. When the firm receives the settlement check (and it clears), the firm deducts $5,000 for costs plus $30,000 for the contingency fee. The rest, $65,000, goes to the client.

Tips and tricks for contingency fee structures

• Nearly every state prohibits contingency fees in family law and criminal defense matters.
• Some states allow lawyers to create hybrid arrangements that include both contingency and hourly/flat rates. For instance, the client and firm might agree to a discounted hourly rate plus a bonus if there is a good outcome in the case.
• Sometimes the firm covers costs if the client does not recover money, and sometimes the client must pay for costs no matter what the outcome is. If the client is responsible for costs, the attorney might want to bill for costs monthly, once they hit a certain dollar threshold, or at the end of the case.
• If you are billing periodically for costs, the attorney may want to include fees on the statements, even though you will not be asking the client to pay them. Even if you are not billing for costs, the attorney may want to send periodic fee statements. This can reassure clients their case is being worked.
• Even if you do not bill the client for fees, you may need to prepare a fee report for settlement negotiations or when the firm is filing a fee petition. (A fee petition asks a court to make the other side pay the firm’s bill.)

Flat rate or value fee structure

Instead of billing by the hour or retaining part of a settlement, the firm can set an all-inclusive rate for the work. Typically, the client is also responsible for the costs. An example of a simple flat fee engagement:

Jane is forming a corporation. For $2,000, Attorney A agrees to prepare and mail the necessary paperwork with the Secretary of State’s office. Jane must pay $2,000 up front. She will also be billed for copies, postage, and the filing fee at the end of the case (when the costs are known).

Flat fees can also be recurring. For instance, a small business might pay a flat fee every month to have an attorney on call to help with any business problems that arise. Or a large matter might include multiple flat fee payments, with each one due at a certain stage of the project.

Tips and tricks for flat or value fee structures

• Flat fee arrangements can include hourly or contingency fee. For instance, a firm might offer a flat fee on outside general counsel services, but agree that if the client uses more than a certain number of hours per month, the excess time will be billed at an hourly rate. Or a client might agree to pay a flat rate plus a percentage of money recovered in a contingency case.
• Costs might be included in the flat fee, or you might need to bill for them. The attorney may want to bill at the end of the matter, monthly, or when a certain threshold is reached.
• It is usually a best practice to include fee entries when billing costs, even though the client is not paying hourly. This demonstrates the value the client is receiving.

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.

• What is the fee structure for this matter (e.g., hourly, flat rate, contingency, or hybrid)?

For matters with hourly fees.

• What timekeeper rates should be used?
• Do you want to bill monthly, or at a different cadence?
• Should costs be included in every bill? If not, when (e.g., when a threshold is met, at the end of the matter)?

For matters with contingency fees.

• Will costs be billed to the client? If so, when (e.g., when a threshold is met, at the end of the matter)? Should cost invoices include fee entries?
• If we are not sending regular cost invoices, should the client get regular informational statements showing fee entries?

For matters with flat fees.

• Will costs be billed? If so, when (e.g., monthly, when a threshold is met, at the end of the matter)?
• Is there just one flat fee, or multiple flat fees? In either case, when should the flat fee(s) be billed?
• Should we include the unbilled fee entries on the flat fee and/or cost invoices?

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.

Ready to learn more? Stay tuned for Part 2 of this series on how to bill for any fee structure.

You’ve done the work. Your client is happy. Two weeks later, they get your bill. It sits on their dining table for a night, then a week, and is then buried under countless other pieces of mail. If you’re lucky, they’ll find it a month later and pay. But for many firms, accounts receivable are ultimately not received.

Getting paid for your work is essential for your firm’s ability to continue serving clients, and yet it often seems that getting paid is harder than the actual work. If you are getting fed up with this cycle, see how these four tips can help simplify your law firm’s collections to benefit your practice.

Tip #1: Start by setting expectations for the billing experience

As a practice management and legal billing software provider, we lean heavily on technology. However, no matter how much we like to think software can solve every issue, the truth is that people are what matter most in the legal sector.

Therefore, before we talk about collections, remember that every interaction you have with a client will influence the impression they have of you. Considering how vital referrals can be in the legal sector, it’s critical that your firm’s billing experience doesn’t alienate a client who could send business your way in the future. And while collections isn’t any client’s favorite topic, it is an opportunity to establish a strong relationship with them. So, take the time to set expectations upfront. Be sure to explain:

• How your rates are calculated
• How and when the client’s invoice(s) will be delivered
• What your client’s payment options are

Naturally, how this is communicated matters. Your clients could be going through an incredibly painful period in their lives. Communicate your billing practices clearly and concisely, and let your clients know how they can reach you if they have questions about your billing.

Finally, give them an opportunity to ask questions about your billing process. If a client is concerned about whether they’ll be able to pay, having that discussion can help them understand what they should do before starting. Building this foundation of clarity, transparency, and trust early can improve both your collections as well as your ability to work with the client.

Tip #2: Review your collection policies, procedures, and reporting practices

Consistency makes billing and collections easier, both for clients and your firm’s internal team. For example, when is a bill sent? When is a follow-up reminder sent? When is a client’s balance written off, and how is that squared in your books? Having a consistent approach to these situations makes it easier to automate, increasing your firm’s ability to collect and eliminating opportunities for client frustration.

Many firms don’t have these collections policies in place, and those that do often implement them inconsistently. This leads to two common outcomes:

1. Clients are billed, followed up with, or written down or off, but this isn’t clearly communicated internally. When this happens regularly, it can leave your accounts receivable in a confused state, putting your firm’s cash flow at risk.
2. Clients don’t know what to expect and, therefore, have a poor experience when they finally do receive your invoice. This can leave clients on a sour note, impacting their likelihood of being promoters of your firm.

Take the time to review your collections policies, procedures, and reporting practices. Doing so can improve your internal and external communications, make your teams more efficient, leave clients happier, and remove ambiguity from the billing process.

Tip #3: Provide clear and timely statements

We started by saying that one of the most important parts of billing is setting expectations, and we stand by that. Clients are more likely to pay when their service is recent and they know what’s coming. Alternatively, if your clients are surprised by a bill or there’s been a lapse between their service and your invoice, it’s almost always harder for your firm to collect. That means more time spent following up and less time on what drives your firm forward. Providing clients with easily-understood invoices promptly after their service is crucial to maintaining a predictable revenue cycle.

How can you do it? Dozens of ways. If you use a customer relationship management platform, you can enter notes and reminders there and add notifications letting you know when to bill. Then, you can execute those tasks in your accounting platform. You can then set a reminder for when to follow up. You can repeat this process until you’re able to collect. 

Tabs3 can help you quickly manage billing, follow-ups, and the rest of your firm’s collection needs. From sending invoices by email immediately after service to writing off client balances, Tabs3 helps your firm administrators accurately and efficiently enter billable hours, leaving them with more time for the work that drives your law firm forward.

Tip #4: Make it easy for clients to pay

The use of checks and cash is declining, and with so many forms of cashless payment available, each client may have different preferences for how they pay. Therefore, we recommend you avoid forcing a single payment method on your clients. For example, some clients may not have a PayPal account set up, so having your default payment method as PayPal may create enough friction to delay or prevent your collection.

Instead, offer as many payment options as you can. That way, clients can pick whatever they’re most comfortable with. Done manually, offering multiple payment options can be tedious, but it doesn’t need to be. Tabs3Pay allows you to share a single payment link in your emailed bills, letting clients pay securely as soon as they get your message.

Increase your connections to increase your collections

There are dozens of reasons a client might not pay their bill on time. They may have forgotten it, ignored it, or not understood it. No matter what the reason is, it can be prevented with quality communication upfront and a prompt, user-friendly billing process after. 

While you focus on setting expectations, lean on Tabs3 to simplify your billing process so your firm’s administrators can manage their time, not collections.

To learn more about how Tabs3 can help you bill better, schedule a demo today!

Historically, law firms have been hesitant to accept credit card payments, largely due to security and compliance concerns.

This hesitance may have been justified in the past, but today’s attorneys have every reason to implement online payment processing. Modern legal payment processing solutions allow practices to protect clients’ card information while still allowing them the convenience of quick and simple online payments. In addition, firms are able to safeguard trust accounting practices and ensure adherence to compliance.

Here are seven key benefits of online payments and credit card processing for law firms.

1. Attract more clients

In the past, law firms shied away from accepting payments by card. But today’s clients see paying by card as normal in a professional context, and a growing number of your firm’s prospective clients expect to have the option. In fact, 84% of consumers now consider the option to pay by card as either a “nice to have” or a “must have.”

If you aren’t offering clients convenient ways to pay, they’ll be more likely to move on with another firm.

2. Build a strong client-attorney relationship

The convenience of paying by card can also boost client satisfaction. By accepting online credit card payments, you’re signaling to your clients that you care about them enough to make their experience with your firm as streamlined and effortless as possible.

Allowing your clients to make convenient online credit card payments also improves the chances they’ll pay quickly and reduces the need to follow up about their invoices.

3. Streamline workflows

Online payment processing can also cut down on the administrative hassle associated with collecting, recording, and allocating payments, especially when your payment processor is integrated with your legal billing software.

With the right software tools at your disposal, you can streamline billing and accounting processes by including payment links when you email your invoices, then use your legal billing software to automatically record and allocate payments as they come through.

It’s less work for your team than manually cashing and processing mailed checks, and it frees up more time to spend on service to your clients.

4. Get paid faster

The harder it is to pay your firm’s invoices, the more likely it is that those invoices will end up getting lost, forgotten, or put off until later. Providing clients a convenient and easy way to make payments can reduce the average time it takes them to pay and help your firm eliminate cash flow and collections issues.

In fact, one survey of legal professionals found that firms that accept digitized payments by card get paid 39% faster on average. That’s a significant improvement for legal professionals looking to collect payments.

These quicker payment turnarounds also make it easier for your firm to budget by taking the guesswork out of your forecasted monthly revenue.

5. Receive payments on retainer

Legal retainers are easier to manage if your firm is accepting credit card payments for trust or client funds deposits

That means you won’t need to waste waiting for a check to collect the money you have already earned. A good credit card processing solution for lawyers will also allow your firm to easily request funds when a client’s trust account balance gets too low.

It’s more efficient for the members of your firm and more convenient for the client, who doesn’t need to put in extra work to keep their trust account funded.

6. Compliant credit card payment is possible

Perhaps the most common reason for law firms to avoid credit card payments is the fear of violating the ABA’s ethics rules for trust accounting.

Under Rule 1.15 of the ABA’s Model Rules of Professional Conduct, there are strict rules governing the use of client trust/IOLTA accounts. Specifically, law firms have to take care never to commingle client and operational funds and to withdraw funds from a client trust account only as fees are earned or expenses are incurred.

Violating these regulations can come with significant repercussions, even if funds were commingled or withdrawn from a client trust account by mistake. For this reason, it pays for legal practices to be extra cautious when processing trust account payments.

The problem is that most generic payment processors withdraw their processing fees directly from the same account they deposit payments into. That means your client’s trust account funds are being used to pay processing fees, which is a direct violation of the Bar rules. And routing payments through your firm’s operating account won’t work either, since the ABA prohibits the commingling of funds between separate operating and trust accounts.

A legal software solution like Tabs3Pay can automatically withdraw processing fees from your firm’s operating account while depositing funds into the client’s trust account, so you can enjoy the benefits of trust credit card transactions without risking your practice’s professional standing.

7. Online payment processing is secure

The risk of security breaches is another reason law firms hesitate to invest in credit card processing. These concerns are justified given law firms’ responsibility to protect their clients’ confidentiality and credit card information, but today’s software solutions maintain a high level of security.

A reputable legal payment solution should allow your clients to log in to a secure online portal to make their payments, so your firm can ensure that card data remains encrypted and secure as payments are processed.

Your practice should look for credit card processors that are compliant with the Payment Card Industry Data Security Standard (PCI DSS), which offers an exceptional level of security and safeguards your clients’ credit card information throughout online transactions.

Modernize your law firm’s payment options with Tabs3Pay

Tabs3 Software is an industry-leading provider of practice management, billing, and accounting software for lawyers. With Tabs3Pay, we’ve created a payment processing solution designed to meet the needs of legal practices.

Unlike most generic payment processors, Tabs3Pay includes safeguards to ensure that your firm stays compliant with ABA trust accounting rules while processing credit card payments. Our legal-specific payment processing software also offers:

• Simple and transparent pricing
• Certified PCI-compliant security
• The ability to accept payments either by credit card or by eCheck
• A surcharging feature that allows your firm to pass on credit card processing fees to clients (available in states that allow credit card surcharging)

If you’re ready to get started with convenient, compliant credit card processing for lawyers, get in touch or schedule a demo.

Reflect before you have to collect!

Over the course of the pandemic, clients may have been increasingly unable or unwilling to pay for services they received. Tabs3 Software has worked to streamline the processes of billing and getting paid.

A change in the payment behavior of your clients may have been part of the pandemic’s collateral damage, and may have had an effect on your business’s cash flow. To minimize future risk, a comprehensive review of policy, procedures, reporting, insight, technology, and people is recommended.

Review your policies, procedures, and reporting

Many firms do not have a consistent policy that guides their collections process. It’s important to invest time and resources into establishing a policy that guides email content and communication around payment requests, to avoid damaging client relationships.

Provide clear, accurate, and timely statements

Clients are more likely to pay quickly when the service is recent and fresh in their mind. As time passes, invoices become more difficult to collect.

A key step to optimizing your collections process is to bill via email. Not only can you then invoice customers right after services are rendered, but you won’t have to wait a few days for bills to make their way to customers.

Be certain to provide enough details in the invoice while keeping legal jargon to a minimum. Recording billable hours and fees correctly also makes it easier for your bookkeeper to do their job. Every feature in Tabs3 Billing is designed to facilitate accurate entry of time and money.

Good software helps you accurately track receivables, including the invoices you’ve sent, what’s been paid, and what invoices are outstanding.

In some instances, customers may dispute an invoice and refuse to pay if they’re dissatisfied with the services they received. The ability to Write Down or Write Off all or a portion of a client’s accounts receivable balance is another way Tabs3 can simplify the work administrators do every day.

Make payments as easy as possible

Don’t force your customers to pay in any specific way. The more options you give them, the more likely they will pay you on time.

Tabs3 Billing allows you to enter a payment link when you email statements, so clients can pay securely as soon as the email is in their inbox. Even better, payments are applied directly to client accounts so you don’t have to enter a thing. Tabs3Pay allows you to get paid faster, right from within Tabs3 Software.

Use this as a chance to connect

Every interaction you have with your client leaves an impression. This is especially true when it comes to collections. Whether it’s over the phone or through email, it can be a challenge to address a difficult topic. Put yourself in their shoes and think about how you would want to be addressed in the situation. In addition, use this opportunity to let them know you appreciate their business.

There are many reasons clients may not pay their bills on time. Forgetfulness, negligence, unclear or incorrect bills, and subsequent delays can create unwanted challenges that can put your business at risk.

See how Tabs3 Billing and Tabs3 Pay can make billing and getting paid easier for everyone in your firm. Schedule a Free Walkthrough Demo of Tabs3 Now.