Running a law firm means ensuring that your financial boat is able to weather the storms that blow your way. One way to stay afloat is to ensure that your billing realization rate isn’t leaking dollars!
Billing realization is the percentage of recorded attorney or paralegal time that actually ends up on the bill sent to the client. For example, if $1,000 worth of time is recorded on the time sheet, but is later whittled down and billed out for $900, the billing realization rate on the matter is 90%, meaning that the firm has billed out only ninety cents of each dollar of time recorded as having been worked. You don’t want to allow your billing realization rate to slip below this mark if you can help it, and higher is better.
It is important for firms to monitor not just the aggregate dollars written off as billing adjustments, but to also monitor the billing realization percentage. The direction in which this measure is trending can tell you a lot about your firm’s health.
Usually, when a firm’s billing realization rate starts to slip, this is an indication that the firm is using ineffective procedures to do the work, or the responsible time biller isn’t as familiar with the area of law as he or she should be, or both. Either way, it means it’s time to take a look at who’s doing the work and how he or she is doing it, to determine whether training or the implementation of new work processes is needed. It may also mean that the firm needs to develop a new method for reviewing and approving the writing down of recorded time.
Most attorneys are at first put off by the thought of someone else, like a billing committee member or “billing czar,” dictating the final content of a client’s bill. But it is always advisable to have another attorney make the billing attorney accountable for discounts given beyond a modest limit everyone agrees to in advance. This is one area which can yield tremendous additional profit for the firm without individual members having to work harder, simply by tightening up billing practices and ensure that you are not spending time in a leaky financial boat!