Setting Up a Detailed and Accurate Billing System

Last week I promised you that this week we would start talking about the next area in the five areas that it takes to make up every business in the world, "billing."

As you know the five areas that make up every business in the world are as follows: "Clients or customers;" "Administration;" "Getting the work done;" "Billing;" and "Collecting."

We have been discussing how no business in the world can survive without "clients or customers." No business in the world can exist very long without "administration." And, no business can exist without "getting the job done." The last two areas that make up every business, "billing" and "collecting," are often the two most difficult jobs to complete in a service business.

If you talk about business where a product is purchased by a consumer, the concept of billing and collecting is really pretty simple. You pick up the item, you take it to the cash register, you pay for it and you walk out the door. Many service businesses are equally as simple with regard to billing and collecting, but the more sophisticated that the service business becomes, the more difficult it is to ensure that there is prompt "billing" and prompt "collecting."

I think I have seen about every kind of billing system that there is with regard to billing for the delivery of legal services. I've seen everything from the old time bills: "for services rendered X number of dollars," to sophisticated computerized billing systems that must be filled out on a daily basis. One of the more remarkable systems that I witnessed at one time was a lawyer who billed insurance defense cases at the end of the case, and he would dictate his time while reviewing the correspondence and the pleadings backboards in his files. Talk about "random" at best.

I believe that training yourself to be a consistent and accurate biller is certainly an acquired skill. I don't think that anybody is born to be a detailed, accurate consistent biller of legal time.

I think that law firms have tried to implement nearly every system that the imagination can think of in order to assure that people properly and timely write up their time. I have even heard of systems where you cannot get paid if your time is not in.

I think that I should give you a little bit of a review of the various billing systems that I have been involved in over thirty-five years of my practice. I began keeping time by writing on a sheet of paper in each one of the files that I was working on that had a place for a date and place to write out the time. These sheets were prepared by the law firm I worked in, and you would continue to add sheets one on top of the other at the back of the file and hopefully remember to periodically bill the file. Truthfully, this was not a very good system. The next law firm I worked at had arguably the best time keeping system that I have ever incurred. They used a system called "time slips" that were individual pieces of paper that you would write on and would end up on a back-up sheet so you could keep a running total of your time. All of these time slips were turned into the bookkeeping office, and the bookkeeping office was religious about billing on a monthly basis. I think I cut my teeth on law office management systems at this law firm, and have never forgotten the valuable lessons I learned. I operated on that time slip system from 1972 through approximately 1995. I am reminded of the phrase, "if it ain't broke, don't fix it." Eventually, the computer age took over and it did not appear that there was any need any longer for an actual paper time slip. It became easier for everyone to access the time billing software, and to simply input their time, or to have an administrative assistant, a secretary or a paralegal input the time. Eventually, it became very easy to simply dictate my time and have a billing clerk input the time for me. I find it incredibly ironic that the less time I have spent writing up time tickets, the more time seems to be written up and the more time actually gets billed to the clients.

We no longer use time slips, almost everyone inputs their own time or dictates their time for others to put into the computer, and in many cases, we have systems set up so that time is automatically billed for everything that we receive in the mail and everything that goes out in the mail even before the person who needs to review it has reviewed it. Everything that comes in the office will be reviewed and everything that goes out of the office will be reviewed by the responsible lawyer for that matter, so why not bill the time at the time that it comes in the office or goes out of the office and save the person who will be doing the reviewing the necessity of writing up a time ticket or entering time in the computer at the time they actually review it? This automatic time input system has worked incredibly well.

Whether each person writes up an individual time slip, dictates their time, puts in their own time in the computer system, or you have systems that will cause time to be directly inputted at the time a task is done, you must have a system to keep track of how much time you are spending.

I have heard many firms who do only contingent fee work say that they do not keep track of any of their time. I submit to them that it probably is a time saving concept, but it certainly creates a problem with regard to trying to see whether or not you have actually been profitable in a certain case. Additionally, some contingent fee cases call for a fee to be approved by a court, and if you do not have any billing records, it is going to be little hard to tell the court what kind of a fee you should be entitled to. I suppose that after a period of time you simply become fairly adept at knowing about how much time and money you have in a case and whether or not it was profitable. I feel sorry for those people though who are just starting off in the practice and that are learning everything by "trial and error."

One of the concepts I have always lived by is "you cannot manage it if you cannot measure it, and you cannot measure it if you cannot manage it." If someone were to ask me what are the two most difficult things to get people to do when it comes to people who are working in law firms, I would say the following, "the first hardest thing to get people to do is to bill their time, and the absolute hardest thing to get people to do is to collect the bills." For some reason people just don't train themselves to be good billers. They do not bill their time on a timely basis, they do not bill it accurately, and they simply lose a lot of time that they otherwise could have billed. I have found that it often takes somewhere between six months to a year to teach someone how to be a proper biller in a law firm. This is just simply too long, and people need to become quicker learners.

Next week we are going to talk about one of the above concepts with regard to billing in a little bit more detail. We have a concept in our office called "paper time input." We are going to discuss in some detail how time entries can be made for each and every piece of paper that comes in or goes out of the office. I think you will find the more detailed explanation of this concept to be very helpful.

Talk to you next week.

Jim Wirken is a civil trial attorney and the Chairman of the Board of The Wirken Law Group in Kansas City.