Some Facts about Billing Your Clients for Facsimiles
We are still talking about "tips" in the area of "billing." You will remember that "billing" is the fourth area of the five areas that make up every business in the world. The other four areas are: "Clients" or "customers"; "Administration"; "Getting the work done"; and "Collecting."
There are quite a few "tips" in the area of "billing," and the first one we are starting with is expenses that your firm incurs that you normally would just "eat."
One of the philosophies of passing on expense to the clients is to pass on the expenses to the clients who are actually having you incur the expense for their benefit. The concept of setting an hourly rate is that you take all of the overhead expenses and spread them over all the clients. Arguably, this makes your hourly rates higher. On the other hand, if you take expenses and try to allocate them to the individual clients who are having you incur those expenses on their behalf, then you more accurately allocate those expenses to the people who are actually using them, and thus you should be able to keep down your hourly rates.
One of the other concepts of passing on expenses to clients is that the expense arguably then becomes a sum zero subtotal in your income and expense statement because the expense will be offset by the income that you will get when the client pays their expense bills. Even better, if you build in a modest recovery over and above the actual expense because of the concept of "cost-accounting," or you allocate other items of overhead that are impacted by the expense in question, such as square footage rent, operator cost and other such overhead items, you can actually make one of these expenses that you would normally be "eating" into a modest "profit center."
This week's "tip" is to charge for faxes that are sent by your office and that are incoming. When the fax machine first became widely utilized, many law firms went out and purchased such machines. I am confident that they never thought about passing on the cost of the purchase of that machine to their clients. They simply ate the expense as an overhead item. As fax machines became more and more sophisticated, they also became more expensive and ultimately, fax machines can now be hooked in directly to computers, and faxes can be sent with the push of a button.
There may be some argument that email has made the fax machine obsolete, but until scanners become 100 percent reliable, the fax machine still has a place in the modern law firm.
When you stop to think about the cost that goes into both incoming and outgoing faxes, why should the law firm eat this expense? Oftentimes, outgoing faxes could also be long distance calls. There is an operator who needs to prepare the fax and send the same. The fax machine needs to be paid for, needs maintenance, needs toner and needs paper. Why not figure out a way to pass on all this expense to your clients.
We have solved this problem by putting a clipboard by our fax machine and asking the operators to record every time a fax goes out and every time a fax is received and to pass that cost on to the clients. For outgoing faxes, we charge $1.50 per page.
By simply putting this expense on this clipboard, and subsequently having it be entered into our computerized billing system, we are able to pass on the fax expense to the clients.
We have been passing on this cost to our clients almost from the day we first got our first fax machine back in the early '80's. In that whole time, not a single client has ever raised an issue with regard to this expense billing with us. Of course, we indicate in our engagement letter that we bill for faxes, both outgoing and incoming. The client has agreed to be billed for this expense and to pay this expense at the time the engagement is received from the client.
I think you are continuing to see our concept of billing expenses to clients who utilize the expense. The clients that incur the expense seem more than willing to pay for it, and the clients who do not incur the expense are grateful that we can make our hourly rates more competitive by not having our overhead be so high that it eats us alive.
Next week we are going to continue to talk about expenses we bill our clients, and next week's topic is the billing of "excess postage." I can hear the collective groan, and the question being asked, "are you kidding me, do you really bill for excess postage?" The answer is a resounding "Yes!" Again, I think you will find our philosophy behind billing "excess postage" to the client to be totally consistent with our philosophy of billing expenses and where possible passing the expenses used by the clients on to the actual clients who are incurring the expense. I think you will find our ongoing discussion with regard to the billing of expenses to clients most interesting.
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.