There isn’t a single law firm in existence that can continue to exist without a robust legal billing department. It is the only way that a law firm generates any revenue for itself, and it is imperative that these departments are run effectively for the law firm to continue to provide services to clients. This is also why even minor legal billing errors can create massive problems for a law firm.
Today, we will look at how legal billing errors can have impacts in several ways, including:
- Financial – The loss of revenue due to billing errors can add up quickly and contribute to struggles to pay the bills.
- Reputational – Who wants to work with a law firm that can’t even seem to bill its clients properly? That’s right, no one. Thus, even small billing errors can have a negative reputational impact as well.
- Operational – Time may be wasted fixing errors in billing that never should have been made in the first place.
- Compliance – Certain regulations exist around how clients are to be billed for legal services, and the failure to meet those standards can cause one to suffer compliance issues.
With this in mind, let’s look at how impactful inaccurate legal billing can be.
Understanding Inaccurate Legal Billing
What exactly does inaccurate legal billing look like, and how can you spot it in advance? These are the types of questions that every law firm should examine internally. Here are some of the ways that inaccurate legal billing might manifest within your firm:
- Overbilling – It is possible to inadvertently charge a client more than what was agreed upon to begin with. This might look like padding in extra billable hours or simply entering the wrong amount of time when generating the bill to begin with. Either way, it will lead to frustration and complications around billing the client correctly.
- Underbilling – On the flip side, there is a risk that a client might be underbilled as well. This is often a data entry error, but it might mean that the client is off the hook for payment for services that have already been rendered.
- Incorrect Client Codes – Entering incorrect codes into the billing software will cause it to generate billing figures that are inaccurate as well. Thus, it is possible to bill the wrong client for services rendered. This can get messy and confusing quickly, and you want to avoid doing so at all costs.
These are just a handful of the ways that inaccurate legal billing can manifest. Unfortunately, these types of things happen more often than most of us like to think about, and they can cause quite a bit of damage to the firm.
Common Causes of Inaccurate Legal Billing
Understanding the root cause of so many legal billing errors can put one in a better position to take care of these problems. With that in mind, the following are some of the most common reasons why inaccuracies crop up in legal billing.
Lack of a Standardized Billing Process
Simply put, there should be one standardized way that a law office bills its clients, and there shouldn’t be any major deviations from that format. When everyone who handles billing for a given law firm knows how that process is supposed to work, then everyone can get on the same page and avoid making mistakes. When mistakes are made, they are easier to identify when using a standardized billing process because they will stand out more and can be correctly quickly.
Manual Time Tracking and Entry
Lawyers who use manual time entry can’t be held fully accountable for all their hours. This can lead to disputes with clients and cause other issues that take up time and resources. National Law Review explains:
“If that’s not enough, manual time tracking is a cumbersome process. It takes extra time to track time using manual methods – time that isn’t billable. In addition, if there’s a dispute, lawyers have no way to show their process or account for the time spent on casework.”
This is a serious issue that could result in lost income, and it is a great reason to always use automated billing software to keep track of those hours.
Poor Communication Between Lawyers and Staff
It is the responsibility of everyone who works in a law office to communicate effectively with one another. When even one person drops the ball on this, it can cause everyone to be less than effective at their jobs. As such, poor communication between lawyers and their staff has been known to be a major cause of billing errors. Whenever possible, all billing-related concerns should be addressed in writing so that there is no confusion about what is meant to be billed at any given time.
The Damage Done by Inaccurate Billing
As we have already mentioned, inaccurate legal billing does damage to the firm in a number or respects. Now, we should look at what those impacts might look like for the firm.
Financial Impacts
First and foremost, the financial impacts are something that shouldn’t be overlooked. When clients are inaccurately billed, it means that they are either being overcharged, undercharged, or they are receiving billing information that does not belong to them. As such, a billing dispute will likely be filled by the client, and this will disrupt the income flow into the firm for a significant period of time.
Reputational Impacts
No one wants their firm to become known as the place that can’t even properly bill their clients. Clients who are improperly billed will likely become angry or upset, and they will spread the word about what has happened to them. Given that law firms rely so heavily on word-of-mouth marketing, it is best to try to keep all clients as happy as possible at all times. Even a small slip-up here or there on billing matters can undo a significant amount of built-up goodwill.
Compliance and Legal Risks
Billing inaccuracies open a law firm up to disputes from clients and even malpractice claims in some cases. It can become a very serious matter if a law firm is knowingly overcharging clients, and that is far from the type of reputation that you want to have earned for yourself.
Operational Inefficiencies
Getting the job done properly the first time is clearly the best path forward. When you are constantly having to clean up messes that have been created in the billing process, you are just doubling up the amount of work you must do. As such, it is best to try to eliminate as many of those messages as possible from the start and improve operational efficiency by getting it right from the start.
How to Prevent Inaccurate Billing
There will never be a foolproof way to prevent all billing errors, but there are steps that you can take to reduce the number of instances of billing issues. Among the things to do to prevent billing inaccuracies include:
- Properly Train Staff – Ensure that all staff have received enough training to properly handle the workload that is thrown their way. They need to know how to take care of all billing concerns that might arise, and they might even need to be shown how to use new software as you begin to implement it. Take the time to provide them with that training so that they make fewer mistakes.
- Update Billing Software – Speaking of billing software, don’t forget to update yours from time to time. Providing employees with the tools that they need to handle your billing concerns effectively the first time is one of the best ways to cut down on mistakes.
- Perform Regular Audits – Always check in on your staff and perform regular audits to try to catch mistakes before they become bigger problems. This is one of the best ways to cut down on the damage that billing errors can cause.
Take some time now to review your current billing software if it is not reducing inaccurate billing it might be time for a change. LawBillity will keep your law firm’s billing accurate and up to date. Start a free trial today.
