Introduction to Legal Billing
Legal billing is a fundamental part of running a law practice, and it is important to have a good system for billing so that you will be able to accurately charge fees and get paid efficiently. At the same time, legal billing is often overlooked or taken for granted, which can lead to problems that are difficult to resolve. Law firms that do not understand how to explain their billing entries to their clients may find that their clients are unhappy or refuse to pay their bills. Law firms that do not have billing schedules and protocols in place can struggle to get paid timely, accept credit cards, or get paid electronically.
It is important to be able to make sense of legal billing . Not only does legal billing track the time and expenses that go in to handling legal matters (which can culminate in a request for payment) but legal billing entries are also one of the most important ways that you communicate with your clients about the services you have performed on their behalf, and your billing entries should reflect the work that has been done and the value of those services to the client.
There are many different types of legal billing entries. Some legal billing entries track time (such as meetings, telephone calls, conferences, and drafting of documents). Some legal billing entries track costs and expenses. Some legal billing entries are billable descriptions of work that is not tracked in a calendar or time and billing program. Learning how to methodically write legal billing entries should help you understand why it is so important for law firms to keep detailed, accurate billing entries.
Components of Legal Billing Entries
Typically, legal billing entries contain client identifying information, service descriptions, billing rates, and time entries.
Client Information
Client information such as the client’s name, client ID number, matter description, and matter number should be included in a law firm’s legal billing entries. The name of person who is making the billing entry, date of entry, and date of service should also be included. Listing the person responsible for a billing entry helps to create accountability and ownership for the accuracy of time spent, including mitigating instances of "phantom time" where time is not actually spent.
Description of Services Rendered
A description of the general subject matter and nature of the services rendered is also essential. For example, if an attorney spends two hours drafting a complaint for a business tort, the billing entry should not just state "draft complaint" but rather should explain the substantive issue, such as "draft complaint regarding breach of fiduciary duty and shareholder oppression." This can also help preserve the attorney-client privilege to the extent that a drafted motion or other document is protected. Detailed descriptions can be extremely helpful in later arguments on reasonableness of time spent. Some plaintiffs’ employment attorneys prefer to be extremely vague about the nature of work, saying simply "review correspondence" or "prepare discovery." If an entry does not say enough to provide a sense for the nature of the work performed, the billing rate may be challenged.
Billing Rate
The billing rate that the lawyer or paralegal charged for the services is usually included in the billing entry. Many clients insist on a single electronic bill, which can be more difficult if different attorneys in the firm have different billing rates. Often, billing software will allow you to specify a "base rate" for that attorney on a matter. For example, if your base rate is $450/hour, but your client has a contract that caps your rate at $400/hour, you can expect to see an entry indicating that you billed at $400 instead of $450. Within a given billing period, offices or practices may wish to reflect a "blended rate" for services on that matter, to avoid dragging on a detailed "who worked how much" game.
Time Entries
Entry of time must be done in increments, usually tenths of hours with some flexibility. A client should not be forced to look at multiple entries of .1 hour or .2 hour for items that could easily be rounded up or down. To help with making time entry, many law firms will start a new matter entry even if 3 minutes of email is involved, because lawyers and paralegals must have a separate file folder or file number for time entries. This can be cumbersome. But it can also create an embarrassing situation when a "padding" over time entry is discovered by the opposing party at a deposition of the client. Ending the practice of starting a new matter entry for phone calls and emails less than 15 minutes each can save hundreds of dollars.
Sample Entry Descriptions
Sample Legal Billing Entry Descriptions
Below are various sample descriptions, which have been used on past client billing entries so that you can get an idea how each attorney has described the services they have performed for their clients.
"Conferred with client regarding discovery responses, etc."
Conduct meeting with client to discuss and determine responses to discovery or other discovery issue.
This is a vague description with little details. Better to be more specific about the meeting with the client, what discovery issues were discussed and what plan of action, if any, was determined. For example:
"Conferred with client regarding discovery responses, review client’s proposed responses to form interrogatories and special interrogatory, researched legal issues relating to discovery responses, drafted and sent letter to client with attachment of draft responses for client to comment on, and reviewed correspondence from opposing party regarding discovery issues."
When describing any conference, meeting, letter or telephone call, always remember to include the parties to the conversation, the date, the actual time spent and an accurate description of the subject matter discussed. Vague descriptions will only lead to unnecessary confusion and a possible dispute with your client over the validity and accuracy of your bill.
"Drafted response to discovery"
Research legal issues and applicable law relating to the discovery issues presented. Prepare initial draft of discovery responses.
This entry is very vague and offers no real description of the work performed. Your billing description should be more specific and more detailed. Something like:
"Research legal issues and applicable law relating to form interrogatories and special interrogatory. Reviewed responses previously prepared by client and Anderson & Anderson. Drafted responses to form interrogatories and attached same as draft for client to comment. Reviewed discovery responses prepared by opposing party, and drafted letter to client forwarding same, with analysis of information and issues raised in opposing party’s discovery responses."
In general, the bill should be an accurate reflection of the time spent working on the client’s file. It should be easy for the client to understand and should show the client what work was done related to their file.
Common Types of Legal Services Billed
Similar to other businesses that bill for time spent performing a service, law firms have a variety of tasks that are typically billed on a hourly basis. Support staff time is billed at a different rate than attorneys, partners bill at a higher rate than associates, and non-attorney mediators and arbitrators bill at their own rate. The types of services that may be provided by a law firm vary depending on the type of legal services they provide, but there are some common ones that can be expected no matter what type of work is being done.
Consultation – generally billed at an attorney or partner rate, whether in person, via phone or email and may include a speech or seminar presentation as well.
Court appearances – team meetings, different attorneys attending different dates, trial appearance, some other type of hearing. Billing for travel time is often included, so unless you have separated it out and have a documented travel policy, you will need to include it as part of any consultation or court appearance that you already have.
Document drafting is another common legal service you might see that can easily be broken down into separate tasks within each document. You might see a billing entry like this:
Or it might be separated into individual tasks, for example:
Page revision 1.9 @ $450/hour
Date revision 0.1 @ $450/hour
Address revision 0.2 @ $450/hour
Summons revision 0.1 @ $450/hour
Other document/drafting services that you might see include demand letters, pleadings and motions, complaint and summons, discovery requests and responses, evidence index, requests for production or for admissions, answers to requests for admissions, responses to interrogatories, general correspondence and discovery management. Any of these can be included in a category on the invoice to assure the recipient understands what the charges are for.
Best Practices for Accurate Legal Billing
Many law firms and individual attorneys have adopted various methods and processes to ensure that their clients’ bills are fair and accurate. Every firm needs to establish sample legal billing items based on a thorough understanding of their own billing guidelines, which the firm should document and maintain. Adherence to these guidelines will help to ensure compliance.
In addition to thoroughly understanding and following your guidelines and obtaining as much detailed guidance as possible upfront from your clients , there are some fairly standard best practices that should be followed in order to manage your risk: Tracking Time – Track time in the same increments that you bill for your minimum time increment. Tracking in increments less than your billing increment may allow you to under bill. Time Entry Descriptions – Use detailed descriptions that comply with your client’s billing guidelines for each line item. Following the guidelines saves a lot of time in the billing process. Utilizing Legal Billing Software – If you utilize legal billing software, it should be set up to your clients’ billing guidelines. This means that the software must allow flexibility in time entry formats, and you must ensure that all users are trained to use it correctly.
Understanding Billing Codes
Understanding billing codes is critical to understanding what you’re looking at when it comes to legal billing entries. The use of billing codes in legal billing entries is intended to facilitate the identification of what types of services were performed, how long each service took, and the total time spent on a legal matter. The push toward uniform legal billing codes is to have a standard way to identify the particular task performed. The Uniform Task-Based Management System (UTBMS) codes are the most commonly accepted uniform legal billing codes. They come in two sub-categories: Activity Codes and Expense Codes. Activity codes are further sub-divided into Litigation, Business, Intellectual Property, Tax, and Bankruptcy.
The Activity Codes being applied to legal billing entries are designed to help corporate clients better understand what’s being done with their money and to provide a better framework for capturing all the diverse tasks performed on a matter. Putting a UTBMS code on a legal billing entry also helps in preventing "block billing," which is the entry of multiple services into one billing entry. Most corporate clients are extremely price-sensitive and need detailed descriptions so they can review the invoices in detail without having to ask the firm to clarify or break out particular services into additional entries. When a firm enters five tasks into a single attorney billing entry, that client then has to request five separate billing entries. The task codes are also beneficial for the law firm because they provide a code for general descriptions. Rather than entering entries such as "review correspondence" and "draft letter," the firm can enter the billing codes for ‘Review and Advise’ and ‘Prepare Correspondence,’ and charge the appropriate rates.
While most firms don’t publish their internal billing codes, this article provides some insight into what will be expected when the UTBMS codes are adopted by more regulated UTBMS systems.
Addressing Disputes in Legal Billing
An open line of communication with clients is key to preventing or ameliorating disputes regarding legal billing. If a client does not understand the process, she is more likely to be surprised by the final bill. Laws vary by jurisdiction, but in most instances an attorney must provide clients with notice of his hourly rate and a reasonably accurate estimate of the total fees. The key is to provide that information early so that it is not a surprise when the bill arrives. Any information clients need should be given to them at the outset, either as a standalone communication or as part of the retainer agreement.
Michael Kralowec , a law professor and author of the book entitled "The Legal Bill: Understanding and Controlling Time-Based Legal Costs," advises attorneys who charge by the hour to put a strong emphasis on accurate and timely recording of billable hours. That means billing clients in real time (ideally after every hearing or court appearance). Otherwise, Kralowec writes, "lawyers often [try] to remember what they did on a prior date, and then recreate their time, including retrospectively charging for what they did not record on the day it was done." Substantial overcharging results.