Paralegals are extremely valuable resources for law firms due to the wealth of experience that they can add. From various practice areas to local court rules, their extensive knowledge helps attorneys maximize the legal services they provide to clients. But to be as effective as possible, paralegals also need a strong understanding of how law firms bill and get paid.
The legal billing process forms the backbone of any law firm, so paralegals must comprehend the fundamentals. The following are basic concepts of legal billing along with some guiding principles specific to billing for paralegal tasks.
What is Time Tracking?
Attorneys typically bill according to how much time is spent on a matter. In order to make that determination, lawyers and paralegals must create a record of tasks completed and how much time they took. For instance, if a paralegal spends two hours answering interrogatories, they should document that time in some sort of task tracking system.
While some attorneys do this manually by writing down their start and stop times, the most effective time tracking is done through an e-billing system. These tools allow paralegals to easily track time in real-time and some include remote tracking capabilities. With time tracking procedures in place, law firms can accurately and efficiently keep up with the amount of time spent on a matter to make billing easier.
What is Expense Tracking?
When providing legal representation, law firms often incur expenses that they may or may not pass onto the client. Some examples include:
- Court filing fees
- Copy charges
- Witness fees
- Travel expenses
In order to accurately bill clients for expenses related to their matters, firms need to track those costs. But even under circumstances where law firms do not pass along these expenses to their clients, they still need a system for tracking expenses and how much is being spent. Many legal billing software options offer tools that streamline the expense tracking process.
What are Alternative Billing Arrangements?
Many law firms use the traditional billable hour when invoicing clients for tasks completed. But over the last decade, many law firms have moved from the billable hour to other alternative billing arrangements. Some examples include:
- Fixed fees where an all-encompassing flat fee is established before representation begins
- Hybrid fees that combine the billable hour with a fixed fee arrangement
- Contingency fees where the law firm payment depends on a particular outcome
- Payment plans where the client is given the option to pay legal fees in incremental payments
What is the Invoicing Process?
In general, the invoicing process consists of the various procedures that law firms utilize to create client bills. But these processes vary greatly from one firm to another. For instance, some law firms may choose to bill at monthly or quarterly intervals, while other firms bill more frequently. The party responsible for the billing process may also vary from firm to firm. A billing specialist may handle invoicing in one practice, whereas another practice may leave the process to an attorney or support staff member.
In addition, the creation of invoices may be done manually or with an e-billing system. However, law firms that utilize e-billing software benefit from a more streamlined process that promotes timely payments and greater accuracy.
What is the Collections Process?
The collections process is the procedure or collecting client payments of their invoices. This may be done in a number of ways. Traditionally, most law firms limited their payment options to check or cash payments, which meant that clients had to either mail or deliver their payments. But as electronic payments have become more commonly accepted overall, the legal community has slowly followed suit.
Many firms now accept various payment options, including credit card and ACH transfers. In addition, an increasing number of law firms are expanding the vehicles by which they accept these payments. Some use general payment processing companies, while others work with payment processors specifically geared towards the legal community.
When clients fail to pay their legal fees in a timely manner, law firms may have to undertake additional collections measures in an attempt to secure payment. This may include tools like automated payment reminders that go out to clients on a predetermined date. Phone calls and written correspondence may also be part of the collections process.
What is Accounts Receivable?
Accounts Receivable (AR) is the amount of revenue due to a law firm for legal services that have been rendered but for which payment has not yet been received. It represents the amount of money owed by legal clients. When firms consistently deal with a high AR, it can result in significant financial difficulties. Firm revenue may not be enough to cover such expenditures as payroll, insurance costs, taxes, and office overhead.
TimeSolv legal billing software recently introduced TimeSolvPay as an innovative payment processing system that helps firms reduce AR. With TimeSolvPay, firms can securely store client payment methods and instantly run multiple client payments consecutively to lower AR and increase collection rates.
What is Reporting?
Reporting is an essential function of the billing process. Attorneys need the ability to collect and analyze valuable data about their firm’s financial wellness. Reports can be generated to provide a variety of data, including:
- Expense entries classified by client and matters
- Weekly and monthly time entry summaries
- Task summaries
- Accounts receivable data
- Realization reports
- Banking reconciliations
What Can Paralegals Bill For?
The ABA Model Guidelines for the Utilization of Paralegal Services states that attorneys may charge clients for substantive legal work that is performed by a paralegal. The US Supreme Court issued an opinion on the matter in the 1989 case Missouri v. Jenkins, where the court stated that “purely clerical or secretarial tasks should not be billed to the client at a paralegal rate, no matter who performs them.”
Many state courts have provided further clarification on distinction, generally stating that it is inappropriate to bill clients for clerical tasks, even if undertaken by a paralegal. This would include such tasks as typing, organizing files, e-filing documents, and making copies. As such, for a paralegal’s work to be billable, it must be:
- Legal in nature
- Completed by a professional who possesses the necessary education, training, and work experience
- Complex enough to have otherwise required the services of an attorney
Paralegals Need to Understand the Basics of Legal Billing
The legal billing process is an essential part of any law practice, so paralegals need to grasp the basics of these concepts and procedures. Click this link to learn how TimeSolvPay helps law firms navigate their billing processes.
Additionally, You can view sample billing language for paralegals in our popular blog about ‘Every paralegal should know this common attorney billing language‘, the blog post also offers a FREE Legal Billing Terms Cheat Sheet that helps you staying on top of all your legal communications.
