Billing is a uniquely complicated matter in the legal field, one that regularly results in a considerable amount of lost revenue. The average US law firm had a nearly 10% gap between hours billed and payment collected in 2023. Depending on the organisation in question that 10% can be equivalent to millions of dollars (USD) in revenue lost, and largely because of ineffective billing practices.

If developing an effective billing process were a simple task, law firms would have closed the gap between billed hours and revenue realised long ago, yet it continues to prove challenging to experts across the industry. But while there are not currently any legal billing panaceas available, there are some ways to address common issues with the process and improve profits. One of the simplest and most effective ways to do that is by outsourcing legal billing to a third-party vendor.

Outsourcing billing unburdens law firms from the various complexities of collecting the revenue they’ve rightfully earned and allows them to focus on solutions that bring real value to their clients. With a team of legal billing experts utilising efficient processes, consistent and effective methods of timekeeping, invoicing, pre-billing, and collection can be developed, resulting in reduced errors and greater profits.

Common Reasons for Ineffective Legal Billing

The complexity of legal billing lends itself naturally to ineffective practices and expensive mistakes, but that does not mean law firms should just accept lost revenue as an unavoidable aspect of their industry. Preventing costly mistakes and getting the best return from those billable hours begins with understanding where and why ineffective billing practices tend to occur.

Resistance to Change

A reluctance to adapt as techniques and technology continue to evolve is a common theme in the legal industry, and it can be one of the main culprits when billed hours and realised profits are incongruous. Various tools and services now exist that can help to streamline and optimize the billing process, but law firms must be willing to utilise them and implement them effectively.

Lack of Standardisation

Every client and case is unique, which makes it tempting for law firms to adjust their billing practices depending on the circumstances. However, inconsistency creates errors and results in lost revenue. Standardising the billing process provides consistency and clarity and protects against costly mistakes.

Inaccurate Time Entry

Tracking both billable and non-billable hours with accuracy is essential for effective billing, and yet it is too frequently the case that timekeepers are ill-equipped or lacking the training needed to perform this crucial task.

Poor Invoicing Practices

Sending out invoices can be a time-consuming task that is often delayed, resulting in late payments hindering cash flow. Unclear or erroneous invoices lead to client disputes, prolonging payment and reducing profits.

How Outsourcing Legal Billing Works

Law firms looking to streamline their billing process, reduce errors, and improve their realisation rates should consider outsourcing. Third party vendors can provide the following services:

Timekeeping

A team of experienced professionals will take on the task of recording all billable and nonbillable hours with the help of modern software that can streamline the process and reduce the risk of costly errors.

Pre-billing and Invoicing

A dedicated team will produce pre-bills, distribute them to the necessary team members, finalise them, and see them all the way through the invoicing process. They can also assist in training other team members to use billing software.

Collection

Once invoices have been sent out, third party services can help to ensure the collection of owed funds by tracking upcoming and late payments, sending out letters to clients, and conducting research on delinquent accounts.

Expense Reporting

Tracking and documenting expenses accurately are crucial aspects of legal billing, and utilising third party services can help to streamline and optimise them. This service partners law firms with experienced professionals who can keep detailed expense records that are accurate, verified, and easily accessible.

The Benefits of Outsourcing Legal Billing

Putting the legal billing process in the hands of a trusted third-party vendor can provide the following advantages:

Streamlining Billing

By working with a team dedicated strictly to efficient legal billing, redundancies and errors can be reduced, and the entire process can become smoother and more effective.

Standardising the Billing Process

Third party legal billing services can implement a proven standardized process that can provide consistency, ensure compliance, and improve collected realization rates by reducing the kinds of invoice discrepancies that lead to client disputes.

Improving Productivity

With the complexities of legal billing safely in the hands of a trusted third party, law firms can focus on their core competencies, improving productivity while reducing employee workload.

Potential for Scalability

Third party billing services offer the unique advantage of scaling up or down to meet a law firm's needs. Should there be a surge in billing at any given time, the billing team can be expanded without any extra internal hiring.

Saving Money and Increasing Revenue

With more effective billing practices in place, law firms will not only be able to close the gap between hours billed and revenue collected, but they can also save money by avoiding the need to hire and onboard new employees. On top of that, they will be able to utilise the talents of their internal team more effectively, which can result in greater productivity and increased profits.

Conclusion

The legal billing process is not a riddle that is likely to be solved any time in the near future, but there are ways to mitigate some common issues thereby increasing realisation and revenue. Outsourcing is one of the simplest and most effective among them. It can provide law firms with experienced professionals who utilise proven legal billing methods to maximise profits, all without the need for the costly and time-consuming hiring, onboarding, and management of new internal staff.