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I.T. in practice : Bill right

Every Issue

Cite as: (2003) 77(8) LIJ, p.92

A practice’s decision to hourly or value bill will have implications for the requirements of any technology.

Some years ago, High Court Justice Michael Kirby commented that “the system of billable hours can reward the slow-witted lawyer. It can penalise the experienced, wise and efficient”.[1]

Lawyers who have been in practice for less than 15 years or so, or who have come from larger firms, will understand billing management systems in terms of hours, timesheets, work-in-progress and matter close-offs. Smaller practices and even some larger practices which are (re)discovering the fact that clients often think in terms of what each professional service provider contributes in overall financial value, bill clients based on value provided. The choice of a practice’s strategy – hourly or value billing – will have significant implications on the requirements of any technology to support this strategy.

Hourly billing systems

For larger practices, timesheet-oriented hourly billing systems are seen as the necessary burden associated with selling expertise in hourly chunks.[2] However, a major benefit of hourly billing systems is that it is also possible to track costs reasonably accurately and so determine profitability to a detailed level by fee-earner, partner, client or practice area. Thankfully, technology tools are available to ease the administrative overhead. Examples include document management systems that time document use and modern phone systems that show the time taken for calls. In the area of disbursements, client and matter codes can be typed into photocopiers or entered into word processors before printing to allow flow through of costs. Technology vendors have quickly identified that their products must be able to provide the maximum recoverability of resource costs with the minimum of additional work. Over and above this, “executive information systems” allow practice managers to see at a glance which areas of the practice yield the best profitability. These types of information (key performance indicators) can then be used to make strategic decisions regarding the strengths and weaknesses of the practice.

Value billing systems

In more technologically advanced practices, value billing makes commercial sense. Although efficiency gains may decrease the hours spent on client work, those hours come at an increased office overhead cost. However, clients of more technologically advanced practices should see a higher level of value through quicker matter turnarounds, better quality documents, higher perceived lawyer accessibility and more transparent professional services. Linking this perceived value through to billing should be facilitated by the practice management system in use.

There is another aspect to this, relating to smaller practices. For these firms, there is a hard reality associated with the type and scope of individual matters handled, the client-to-matter ratio and the financial circumstances of many clients. For these firms, it is common to realign their billing systems and methodologies with what a client will (or can) pay for a particular service – there is less emphasis on selling time and more on selling expertise. For these practices value billing systems need to be able to handle the flexibility required when dealing with a specific market sector.

Debt management

It is important that any system chosen – hourly or value billing – feeds directly into the billing and debt recovery system. Debtors’ lists, automated reminder letters, banking and associated software features will make practice management easier and allow for the preparation of business activity statements and annual tax returns. It is important to ensure that billing and debt management systems are integrated, thus avoiding the unnecessary double handling of transaction information in this area.

Conclusion

Seasoned practitioners will recognise that value-based billing and hourly-based billing are not mutually exclusive and, in reality, there will be a mix of requirements in this area within a single client base (and sometimes even within a single client). This provides a special challenge, emphasising the necessity of ensuring that the supporting software allows billing flexibility to be just one of a practice’s strategic competitive advantages.

“To do” List

• For hourly-billing environments, investigate technology tools to reduce the cost of capturing billable activities.
• Investigate additional modules of your existing practice management system in the areas of “value billing” and simple debt management.
• Maximise the use of any graphical or analytical tools that show segmented practice profitability information.
• Minimise administrative workload by ensuring that your billing and debt recovery systems are integrated.
• Learn how to make more efficient use of your finance system for debt follow-up.


ADAM REYNOLDS is the principal of Proficio, an independent IT consulting firm.

For more I.T. in practice information, see the contributions of the Law Institute Legal Practice Management Committee and IT special projects department at http://www.liv.asn.au/sections/lpms_it.

itcolumn@liv.asn.au


[1] Michael Kirby, “Billable hours in a noble calling?” (1996) 21 Alternative Law Journal 257.

[2] See the Canadian Bar Association, “The future of the legal profession: the challenge of change”, report of the Young Lawyers Conference, August 2000, chapter 5, http://www.cba.org/CBA/News/pdf/future.pdf.

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