8 Practical Tips for Law Firms on Fee Arrangements and Billing

Whether you are a solo practitioner or run a multi-million dollar firm, practicing law is a business. You are not only responsible for providing legal representation to your clients (your product), you are also responsible for the financial and operational matters that allow your firm to continue to grow and prosper (your business).

Here are 8 tips for how to run a smoother financial operation:

  1. Conduct an annual review of your rates.

The cost of doing business changes with every passing year, especially if you are growing. It probably costs you more to practice law in 2017 than it did in 2007 -- maybe a lot more. If you fail to make the necessary adjustments to your fee structure, you could find yourself in a financial hole that becomes difficult to climb out of. Avoid this by doing an annual review of your rates and adjust accordingly.

  1. Lump your administrative costs together.

Clients hate seeing line items on their invoices for copies, postage and other niggling administrative expenses. Some even request that those charges be included as a part of their fees. If you are still breaking out these items in invoices, consider charging a flat percentage of your fee for administrative costs --typically no more than 1.5%.

  1. Review your invoicing practices.

No matter how good your representation or reasonable your rates are, clients still dread getting your bills. What you want to avoid as much as possible is having your bills contain unexpected surprises. Your fees and invoicing practices should be discussed at the outset of any client relationship as well as the beginning of each new matter for ongoing clients. Ask them how and when they prefer to be billed. Some may wish to receive their invoices every month by the third week of the month while others may want you to bill by the project.

  1. Consider alternative fee arrangements.

Client demand is driving many law firms to offer alternative fee arrangements. Clients want to be able to budget appropriately for their legal expenses and know the cost before committing to a relationship. If you understand your client’s needs and objectives, you will be better prepared to offer an arrangement that works for both of you. You also need to understand how your client determines the value of your services. Are they expecting a Mercedes or a Mustang?

To establish your fixed fees, your best resource is your invoice history. Examining invoices where you have performed the same type of legal work a dozen or so times can give you a good idea of the types of variables involved so you can set parameters for your alternative fee arrangements.

  1. Clearly communicate everything in your fee proposal.

Setting expectations early and reinforcing them often is a good way to avoid client dissatisfaction over invoicing issues. It all starts with your fee proposal. When you present it to your client, be sure you:

  • Define the benefits they will be receiving
  • Address the scope of your representation and what is (and isn’t) included in your fee
  • Outline the payment terms
  • Detail the timeline for the engagement and milestones
  • Describe the nature of the fee -- i.e., fixed, percentage, adjusted hourly rate, etc.
  • Provide the final number

Remember that you don’t have to offer just one type of fee arrangement -- your engagement may lend itself to different types for different tasks. You may wish to set a fixed fee for preparing documents and an hourly rate for litigation work.

  1. Know when to get a retainer (hint: always).

Upfront money is always better than waiting for payment. Have a retainer policy for all clients and especially those that involve litigation. While you may be tempted to discontinue this practice for long-time clients, don’t. Make it a standard business practice and make sure your clients know that access to your expertise means paying funds into a trust account that will be billed against as the matter progresses.

  1. Multiple practice firms should charge according to complexity.

If you have a multiple-practice firm, your fees should be structured according to the complexity of the work involved for each practice area. Don’t make the mistake of just charging one fee across the board; you may be shortchanging yourself. Examine each practice area separately to determine the best fee structure for each practice.

  1. Have written fee agreements for each engagement.

While written fee agreements are required in many states, you should always have them for every matter you handle for each client. Even if your client has been with you for years, you still need to respect the professional relationship by having a written agreement that outlines the scope of work and payment expected.

Following these tips will not make your clients look forward to receiving your bills, but it will go a long way toward forging better client relationships based on clear expectations

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