1 Chapter 8 Billing and Financial Management. Billing Should Be Regular and Frequent 2 Monthly billing is the most common method of billing. Clients prefer.
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Slide 1
1 Chapter 8 Billing and Financial Management
Slide 2
Billing Should Be Regular and Frequent 2 Monthly billing is the
most common method of billing. Clients prefer smaller monthly
bills. A clients perception of the value of legal services
diminishes with time.
Slide 3
Bill Must Be Effective 3 Descriptive bills Bills that are
correct Errors in math Typographical errors Client perceives the
value to the service Nickle and Dime charges
Slide 4
The Billing Process 4 Timesheets prepared by attorney/paralegal
Data entry into time and billing progam Pre-bill generated for
review and edit Final bills generated Management Reports generated
Aged accounts receivable Productivity reports Other reports
Slide 5
Statutory Requirements for Legal Bills 5 B&P Code section
6148 All bills must clearly state: Amount of the bill The rate
charged The basis for the calculation of charges and costs Must be
furnished to client 10 days following request or every 30 days
Slide 6
Block Billing 6 Where multiple tasks are billed as a single
entry of time and charges Example: Research, draft motion for
continuance, conf. with attorney Jones re: hearing date and attend
hearing on motion for continuance 25hours - $6,250.
Slide 7
Elements of a Legal Bill 7 Name of the case Billing period Date
of the work Description of the work Time increment Name of person
performing the work Hourly rate Cost of the work Itemization of
costs Total costs Total fees and costs Payment terms
Slide 8
8
Slide 9
Common Unethical Billing Practices 9 Padding Applying a clients
funds to a disputed fee Trust account transfers Charging more than
a client agreed to pay Charging for services not rendered to a
client
Slide 10
Common Billing Problems 10 Vague descriptions Perceived poor
work (review and revise) Nickel-and-dime billing Team churning
Interoffice conferences Errors in arithmetic Sent to wrong person
or address Padding Clerical work Block billing Billing for costs
not agreed to Delegable tasks task performed by appropriate
person
Slide 11
Computerized Billing and Time Accounting 11 Most firms use some
variation of computerized time and billing software Traditionally
these were in-house software systems Maintained by the firm SaaS
(Software as a Service) Hosted by the vendor Available over the
internet Vendor provides maintenance and support Vendor charges
monthly fee
Slide 12
E-Billing E-billing a process that allows invoices to be
presented to the client over the internet. Typical e-billing flow
chart:
Slide 13
13 Law Firm Financial Management
Slide 14
Profitability Factors 14 Direct R ates U tilization L everage E
xpenses S peed Indirect S trategy C ulture O rganization R eward
systems E Environment
Slide 15
Two Types of Expenses 15 Compensation Associates and paralegals
Administrative staff Employee benefits Operating Occupancy costs
Financing costs Office operating costs
Slide 16
Common Expense Catagories Advertising Bank Charges Books and
Publications Costs Advanced Depreciation (non-cash) Employee
benefits Equipment Rental File Storage Insurance Liability
Malpractice Workers Compensation Interest Travel/Meals Office
Supplies Professional Dues Rent Salaries Taxes Employment Property
Telephone Temp. Services Utilities
Slide 17
Accounting Systems 17 = Accounting system tracks Income
Expenses Accounts receivable Accounts payable Provides additional
management reports Profit and loss statements Balance sheets Cash
flow reports
Slide 18
Profit & Loss Statement Income: Income legal fees$1,350,247
Total Income$1,350,247 Expenses: Depreciation* 25,250 Salaries
550,000 Rent 400,000 Taxes 35,000 Advertising 20,000 Interest
15,000 Office Supplies 27,000 Total Expenses $1,072,250 Net Income
$ 277,997 18
Slide 19
Balance Sheet,Assets Current Assets: Cash in bank$75,000 Client
Trust account 10,000 Fixed Assets: Office equipment $100,000 less:
Depreciation (20,000) Vehicles 60,000 less: Depreciation (5,000)
Total Assets $220,000 (Cont.) 19
Slide 20
Balance Sheet (cont.) Liabilities and Owners Equity Current
Liabilities: Bank Line of Credit$50,000 Accounts payable 7,500
Other Liabilities: Client trust liability$10,000 Total Liabilities
$67,500 Owners Equity $152,500 Liabilites and Owners Equity
$220,000 20
Slide 21
Balance Sheet Formula Assets = Liabilities + Owners Equity
Slide 22
Cash Flow Statement A report that details the cash received and
cash expended by the business for each month. Composed of:
Beginning cash on hand Cash receipts during month Cash paid out
during month Ending cash on hand 22
Slide 23
Accounting Methods Cash Accounting: Receipts are recorded on
books upon receipt Expenses are recorded on books when paid
Billings or WIP are not reflected on books Most small firms use
cash method accounting Accrual Accounting: Records income when
earned Records expenses when incurred 23
Slide 24
Types of Accounting Systems 24 Stand alone systems Quick Books
Peachtree Sage Integrated systems Systems that include billing and
accounting in a single system
Slide 25
Budgeting Process 25 Project total overhead for the year
Personnel costs/compensation Operating expense Project number of
billing attorneys/paralegals and target rate for each Estimate
number of billable hours per year Calculate realization rate - %
collectable Project gross billings or gross income Adjust the rate,
billable hours or overhead to balance budget
Slide 26
Law Firm Financial Ratios 26 Annual billable time Attorneys
(partner) income as a percentage of billings 60-65% of realized
billings Associates salary as a percentage of billings Salary
should be 1/3 of billings Not realized billings Realization Rate
Percent of bills collected Target is 95% - most firms 80-90% Aged
Accounts Receivable Collection rate is 67% of accounts over 120
days old
Slide 27
Law Firm Banking Bank Accounts General Operating Account Client
Trust Account Payroll Account Costs Advanced Account Credit
Facilities Lines of Credit Equipment Loans