Issue link: https://epubs.iltanet.org/i/7694
ILTA White Paper The Business of Law 40 typically the responsibility of the client are often not recovered if they are incurred outside the firm's systems. Examples might include overnight charges or online research. It is imperative to capture information about all expenses, no matter where and how they are incurred. Many times this phenomenon is referred to as "financial leakage." CoST reCovery SySTeMS To The reSCue The same systems that provide cost recovery also provide law firms with insight into their expenses and ensure productivity. Unlike a relationship where firms bill for hours and recover for expenses, alternative fee arrangements force firms to be more efficient, and reward them for that efficiency. Gaining a full picture of all fees and expenses related to a matter, including areas of "financial leakage," is more important than ever. For example, imagine a matter that generates 1,000 photocopies in a given month. The attorney's administrative assistant may make most of the copies, but say the partner himself makes 200 on a Saturday. Uninterested in looking up a client/ matter code, the partner simply enters "9999." If the firm doesn't have a good mechanism for managing exceptions, it loses track of 200 copies. Then when reviewing a pre-bill, the engagement partner writes off another 200. The client receives the bill, complains a bit, and receives a credit for a further 200, never even realizing that his organization was not billed for the delivery of the documents by FedEx or for the online research that went into creating those documents. If the firm were tracking a billable amount to factor in a monthly flat fee for the client, it would base its price on less than 40 percent of its expenses. The rest has been "leaked." That profitable negotiated monthly fee may not be so profitable after all. TiMe iS Money, anD Money iS Money When working in fixed fees with no ability to bill for excess costs, even a small loss in profitability can make a big difference to a firm. The key to fixed fee billing is to collect good data throughout the firm and then apply that data to sound profitability analyses. Firms account for every hour worked, even those that are not billable, and it is similarly crucial for firms to collect all expense data. This includes copies, faxes, prints, phone calls and scans, as well as travel, court fees, research, overnight delivery, courier and credit card charges. The key is automation to ensure information is collected as these expenses are incurred, rather than asking attorneys and administrators to recreate it after the fact, or worse yet, to guess. Once all data is collected, use it to get a full idea of your profitability. Analyze by matter, by partner, by client and more. Make sure all write-offs are accounted for, and make sure they provide value; reducing the bill for an already unprofitable client does not serve the firm. And make sure you factor all that into the pricing of any fixed fee arrangement, so that your firm's profits don't leak away. iLTa