Nothing like white-hot demand for 2 years to bring out law firm billing creativity — and stress a few systems.
Top legal decision makers tell us they are looking at never before seen surprises. We all know billing surprises are never good — and even worse when they are previously unseen.
Here is what they are dealing with right now:
Retroactive rate increases
Law firms are going back to the date of matter inception to apply rate increases — even when the rate increase was announced after the matter started. Most will limit the reach back to 12 months — but not all.
Sending bills for the amount of a rate increase
Clients report receiving invoices for previously performed (and paid for) work to compensate law firms for the rate increases just as the work was winding down or for matters in process.
A new record in delayed billings
Some invoices are delivered more than 180 days after the work is performed. This drives the business units crazy. In addition, time frames are long enough where the expenses can cross reporting periods and exceed budgets — resulting in clients under-reporting expenses and appearing over budget to all those internally around them.
Renegotiating rates on every matter
A number of clients find themselves negotiating rates for every matter. They are under the assumption the rates you agreed to as recently as last month would still apply. Law firms propose new attorneys, rates, and a different staff mix — and clients find themselves in a new negotiation. This is especially impactful as clients are trying to streamline their process by hiring existing firms.
Ongoing and multiple rate increases
Rate increases are sporadic and unpredictable. Clients know they can expect a rate increase every year — but now they report the higher rates just pop up. There is little or no warning — and in some cases can come right on the heels of a previous rate increase.
Who is that?
Is not unusual for clients to see new and unfamiliar names on their invoices. But they tell us it has now reached epidemic proportions. Attorney turnover is adding and deleting names at a pace clients have not seen before.
Clients tell us a select group of firms is abandoning their previously established Alternative Fee Arrangements. Clients are open to changing an AFA due to changes in facts or material scope — but they say rate increases don’t meet this criterion.
These billing blunders cause 4 points of client stress:
- Clients are surprised. They receive no notice and learn of these rate changes upon receiving the invoice
- In the client’s mind, they break previous agreements, hurting trust and the relationship
- Clients can look bad in front of business unit leaders and the C-Suite
- It consumes valuable and scarce time with no value added
Law firms are well served by communicating billing changes no matter how high or often the rate goes up. And — advanced communication saves you time in having to explain. More importantly it makes clients look like they are well ahead of things in managing budgets — or at least not behind.
Clients ask a lot more questions (and expect really good answers) when they are surprised. Bring them into the fold beforehand — it makes a hard situation easier.
Best in the market ahead.
The Mad Clientist