Understanding Billable and Non-Billable hours in Law Firms

profitability and manage expectations
Billable Hours

The section of work that can be included in customer invoices and that which comes under pure project work is calculated as Billable hours.

The billable hour system is calculated based on how lawyer records as to how they spend every minute of their working day. This calculation decides how they bill the client. It used to be the most common method of charging a client for the work of a lawyer. Different bands of lawyers at different firms, cost different amounts and clients would pay by the hour for a lawyer’s services.

Importance of Timely Billing

Tracking and billing time to clients is a crucial and essential part of working in a law firm. If proper and timely billing is not done, the firm cannot invoice the client, and thereby the firm cannot get paid. Thus, timekeeping is a vital job to be done for the success of any law firm.

Clients nowadays are more towards the technical side and as the fees goes up for law services, they have become more cost-conscious. Apparently, clients are examining legal bills a bit more closely and employing a variety of techniques including database applications to electronically sort and analyze billing data. Ever since, the concept of e-billing the electronic invoices began to grow, the legal invoices are more prone to scrutiny, negotiation, and dispute.

Tips to create prompt, accurate and precise time entries

To become a great legal project manager is the need of the hour for most of the ambitious lawyers. Acquiring the below skillsets can make you one

• Don’t play the guessing game at the end of the week by trying to figure out the list of activities done throughout the week. Enter all the billing hours by the end of day itself to maintain accurate billing.
• Make sure you capture and enter where all you have spent time on or for your law firm. Don’t be very particular about your billing time alone.
• It’s a good idea to review the work done so that you don’t miss out anything on your billing and no efforts go wasted.
• A powerful way to make sure time is entered the day the work is completed is to close out the time entries every week and to set your timekeeping software accordingly.
• Make everyone in your firm fully understand how important time keeping is for the health of the organization with this policy in place.
• Document Your Time Tracking Policy. The simple exercise of writing down a policy can change the mentality and culture of your firm.

Non-Billable Hours

Non-billable hours are those that cannot be billed for or reimbursed by a client. These are generally spent on training new lawyers, conducting internal meetings within the team, communicating with clients -call/emails, overcoming miscommunication, or things like code review and bug fixing, entertaining clients etc.

Non-Billable Expenses are essential too

Non-billable hours are equally important, and your law firm probably wouldn’t run smoothly if due importance is not given to tracking non billable hours. Understanding where your non-billable time goes can help you to identify and avoid or at least minimize unnecessary expenses made by your team. Tracking non-billable time reveals that it’s just as valuable as the time you spend on billable work and helps you to get more quality time. By tracking the non-billable hours, you may discover the costs that you are actually missing out on some hidden billable hours. Ultimately, you will aim to increase the billable hours and reduce your non-billable hours.

There are two main types of expenses a firm can experience called “Soft Cost” or “Hard Cost” expenses.

Soft cost Expenses:

With LPM, attorneys can offer flat fees while at the same time ensuring profitability.

Hard cost Expenses:

Hard expenses are those that are incurred on behalf of a client that require a direct payment by the firm to a vendor. Common examples of hard costs include firm writing a check for a court filing fees, paying a private investigator or paying an insurance adjuster.

Stop Tracking Non-Billable Time

For small and midsize companies there are no incentives to track, as the data is seldom used. Even the gain which may be achieved may not be significant to the additional efforts required by Timekeepers. What Law Firms need is to streamline the legal time reporting and billing process.