05.19.22

Law Firm Group Newsletter – Spring 2022
Joy A. Long, Robert Swenson

While Challenges Still Remain, the Legal Industry is Resilient

JOY A. LONG

After experiencing a surprisingly positive year in 2020, the U.S. law firm market ended 2021 on a solid economic footing according to the 2022 Report on the State of the Legal Market, a report that was issued by the Center on Ethics and the Legal Profession at Georgetown University Law Center and the Thomson Reuters Institute. The following are some of the key findings from the most recent report.

Related Read: State of the Legal Industry Market: A New Legal Model is Emerging

Soaring Demand and Rates

While demand for legal services was weak in early 2021, it climbed throughout the rest of the year. The real estate and corporate practice areas were the primary drivers behind this demand; both recovered their losses from 2020 and exceeded pre-pandemic demand levels. However, litigation struggled, with demand mired below pre-pandemic levels.

The report also found that law firms continued to “aggressively” raise their billing rates in 2021. Combined with better realization, this contributed to another year of strong profits at many law firms.

Hiring Obstacles

The heightened demand for services has created a growing need for legal talent. However, many firms are running headfirst into attorneys’ evolving work preferences — for example, better work-life balance and feeling appreciated and recognized at work — as they try to add to their numbers. In response, the report says that many firms have boosted compensation. Associate compensation rose at double-digit levels, in turn causing overall law firm costs to increase.

But greater compensation has not been enough to combat high attorney turnover. Based on an analysis of turnover patterns, the report found that those firms with the lowest turnover did not necessarily have the highest compensation growth. Surprisingly, the firms that tended to have the lowest compensation growth were those with lower turnover rates.

Notably, workloads also did not seem to correlate with turnover. Attorneys at the firms with the lowest turnover billed an average of 51 more hours per year than their colleagues at firms with the highest turnover.

Lingering Issues

However, the report cautions that the favorable findings in the report should not give law firm leadership a sense of security. It identifies several additional issues firms need to address, including hybrid work models and operational efficiencies. The report notes a growing consensus among firm leaders that some combination of remote and on-site work is inevitable going forward. That will lead to questions involving, among other things, equitable assignment of work, mentoring, evaluations, advancement and firm culture.

Agility is Essential

In summary, the report says that law firms displayed “surprising agility” during the pandemic. Now, it adds, they must stay equally agile in areas like managing support staff and improving financial practices including billing and collections.

For more information, contact Joy Long at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Law Firms and Lawyers Group.


Ten Tips to Jumpstart Your Collections

ROBERT G. SWENSON, CPA, MST

Collections are a fundamental part of profitability and perhaps more important — and more challenging — than ever. By taking the following steps, you can boost your law firm’s revenues while reducing your post-due date efforts.

Related Read: Five Best Practices for Improving Collections

  1. Perform a Flow Analysis
    Use flowcharts and timelines to illustrate your current billing processes. These will help you identify stumbling blocks or bottlenecks that delay the process, from timekeeping to invoicing. The analysis should not be a one-off. Do the analysis at least annually, depending on how your collections are going. This will allow you to implement improvements on a continuous basis.
  2. Establish a Formal, Firm-Wide Policy
    Firms should not handle collections in an ad hoc manner. You need standardized billing and collections procedures so everyone is on the same page, whether new to the firm or an old hand. That said, be open to alternative approaches suggested by creditworthy clients. Billing clients in their preferred method may lead to fewer excuses for late or partial payments.
  3. Set Expectations Early
    Discuss payment terms and your collections policy with new clients at the outset — for example, how often you bill and by what medium. What are the effects of delinquent payment? Will there be financial penalties? Will you seek to withdraw from representation? If clients have their own billing guidelines, ask questions about their expectations and processes. Understanding their side of the equation can help you secure timely payment in full.
  4. Confirm Creditworthiness
    You do not necessarily need to run a formal credit check on every prospective client. However, you do want some evidence that clients are able to pay before signing on. You might want to charge an initial consultation fee. This can weed out clients who will struggle to pay. You can offer to apply the fee to a retainer if hired. (See “Sidebar: Reconsider Retainers” below.)
  5. Do Not Drag Your Feet
    Bill according to a regular schedule, whether at the end of the month, semi-monthly or, for transactional matters, when the work is complete. Regular billing puts clients on notice and allows them to budget for their payments. Plus, clients are more likely to pay for work that is still fresh in their minds. Never let more than a month go by between invoices. If nothing is due, at least send a status report.
  6. Pay Attention to Invoice Format
    Invoices should be easy for lay people to understand. First and foremost, clearly state the amount due, the due date and contact information for questions. Do not stop there, though. Consider breaking down the services so clients know what they are paying for, thereby reducing the odds of disputed charges. You may want to tailor the service descriptions based on a client’s level of sophistication.
  7. Make Payment Easy
    If you have not already, widen the payment methods you accept beyond paper checks. Today’s clients expect the option to use credit cards, automated clearing house and online payments (complying with the applicable state ethics rules). For old-school clients who prefer to pay by check, you can make it easier by including a stamped, self-addressed envelope. For flat fee services, you might accept payment through peer-to-peer payment apps such as Zelle, Google or Apple Pay, PayPal or Venmo.
  8. Consider Charging Interest
    You need not, of course, call it “interest.” You can instead refer to a “discount” for early payment. Any such charges should be included in the fee agreement and discussed upfront. Of course, this is assuming the charges are permitted in your jurisdiction.
  9. Follow Up
    There is no need to be shy when payments are past due, especially when you can automate follow-up. Reminders should go out immediately if invoices are not paid after 30 days and regularly after that. Only offer compromises like significant discounts as a last resort. Such measures disincentivize timely payment.
  10. Conduct Regular Reviews
    Develop the habit of reviewing work in progress and unfinished matters for potential billing opportunities. Prepare and circulate work-in-progress and accounts receivable reports so attorneys know where their clients are in terms of payment.

You cannot afford not to

Not every law firm has the resources for a dedicated billing and collections team, but the tips above are even more essential in such circumstances. They can help you spend more time on your core competency and less time running down receivables.

Related Read: How to Handle Collections and Late Payments

Sidebar: Reconsider retainers

When properly administered, requiring clients to pay retainers can go a long way toward preempting collections problems. And they are not just for larger firms. Retainers give attorneys some guarantee that at least part of a client’s bills will immediately be paid, keeping that client’s account balance at zero. If the applicable state rules permit, you can request an automatic replenishment arrangement  — also known as an evergreen retainer. When the retainer balance drops below a certain threshold or work in progress begins to approach the retainer balance, the retainer is refreshed.

Retainers are an option even if you do not have clients with deep pockets and long-term or ongoing work. Smaller firms or solo practitioners can require an upfront payment of $500 or $1,000, with the client adding to the balance with monthly or semi-monthly payments. If clients cannot make that initial payment, you may face collection issues down the road, so it also acts as a screening device.

For more information, contact Rob Swenson at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Law Firm Group.

Forward Thinking