Are small firms too willing to write off fees?

Are small firms too willing to write off fees?

21 October 2021 By Jerome Doraisamy

New research reveals troubling shortcomings in the billing practices of small law firms across Australia. Firms have, the research shows, “a lot of work to do” in improving their billing hygiene.

Earlier on Thursday, 21 October 2021, leading practice management software company Smokeball released the results of its Small Law Firm Business Survey: Legal Billing Hygiene, exploring the time spent on, frequency of and processes for billing by boutique firm owners across Australia.

The responses of firms that responded, including practices that cover family law, conveyancing, wills and estates, litigation, leasing and commercial agreements, among other practice areas, show that many firms across Australia must improve their billing habits.

Leniency for clients

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When asked if, at some point this year, have firms provided discounts or written off legal work even before invoicing clients, four in five (78 per cent) of small law firms “agree” or strongly agree” that they have done this.

Just 9.5 per cent of firms said they had not done this.

One-third (32.5 per cent) of firms will offer discounts on 50-100 per cent of the matters they work on. Just 15.7 per cent said they would discount approximately one-quarter of their matters, while half of the firms that responded to the survey said they discount less than 10 per cent of their matters.

Client relationships (47 per cent) were cited as the most common reason as to why a firm would discount its fees, followed by feeling that the time spent on a bill was more than the task deserved (22.7 per cent).

If a bill is more than 100 days overdue, only two in five (39 per cent) of firms said they are likely” or very likely” to receive payment. Sixty per cent of firms conceded they are unlikely” or very unlikely” to do so.

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On the plus side, however, 60 per cent of firms said that less than 10 per cent of their clients, on average, are past their due dates with bills. Nineteen per cent said 10-20 per cent of clients are behind, and 2.4 per cent said that more than half of their clients are overdue.

Client financial struggles appear to be the most common reason (53 per cent) why bills are not being paid, followed by client communication (24 per cent) and COVID-inspired cashflow effects (19 per cent).

Processes

Just two in five (42 per cent) of small law firms said they have a regular billing cycle, compared with 57 per cent who said they do not. In addition, one-third (37 per cent) of firms do not have a set process for following up on unpaid invoices.

Almost three in five (59 per cent) spend 30 minutes or less typing time entries, including detailed descriptions, on any given working day. Fourteen per cent spent an hour or more on such tasks, while 18 per cent spent no time on it by virtue of using automatic time tracking.

Nearly one in two (47 per cent) of firms said that they spend less than four hours per month on invoicing and billing, while 29 per cent said they spend four to eight hours on such tasks.

Elsewhere, less than half (46 per cent) of small firms have a bookkeeper, either in-house or outsourced, only 17 per cent of firms have outsourced their debt collection in the past, and 14 days was identified as the most popular length of time for payment terms (45 per cent).

Reflections

One potential reason for such results could be that – when asked what firm owners enjoy most out of intake, undertaking legal work, billing or collecting money – just 3.6 per cent of respondents said they enjoy billing most. Another explanation is that, when asked if they find discussing money with one’s client uncomfortable, 36 per cent of firms said “yes”, while 60 per cent said “no”.

Speaking to Lawyers Weekly about the results, Smokeball CRO Jane Oxley said that there is “a lot of work to do” in order to improve the billing hygiene of small law firms as we move into a post-pandemic market.

“Firms don’t appear to be investing time into thinking about their billing process, often using the same processes for years without sitting down to optimise them,” she explained.

“Even though firms have largely invested in technology and, particularly with remote working this year, are using that well, there is still a lot of manual effort that goes into the billing process, which surprised us.”

Smokeball will, she said, work with such firms to see where improvements can be made to reduce the time spent on this. “We’re hoping that with a combination of education and technology, we can help to challenge these manual processes and introduce further ways through our technology to assist this transition,” she said.

Another key takeaway, Ms Oxley continued, is that small law firms nationwide are “heavily discounting, mainly to build good relationships with clients”.

“We understand that mentality as firms are the bedrock of their communities; however, we recommend that firms take time to reconsider it as an automatic process or habit, especially if it’s seriously impacting the bottom line.” 

Are small firms too willing to write off fees?
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