The Time Question – How to bill in Private Client Practice

 In Practice Management

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The traditional billing model for professional practice firms has been the allocation of a charging rate to fee earners.  They then charge time to each of the matters they work on which is then billed to the relevant client.  Charging rates can vary, but are usually broadly designed to be a multiple of the full employment cost of the fee earner.

Unfortunately this system has some flaws.  For example:

  • By implication if each fee earner charges a similar proportion of their total time as chargeable time, then they will contribute to covering overheads and generating profits on a proportionate basis as well.  However, in the real world fee earners often have administrative roles, and it is difficult, if not impossible, to objectively set fair chargeable targets as the data needed to do this is just not available.
  • Similarly, not all matters are charged at exactly 100%.  In some cases work has been carried out which, with hindsight, cannot be charged to a client and so may not be recoverable.  In many cases as well, unless the department is absolutely full it may be economically rational to bill some work at a recovery of less than 100% and generate at least some margin, rather than lose the job completely.
  • Also private client departments often only have a limited number of fee earners, and the most appropriate person may not be available to do the work.   For example a discount may need to be applied to a fairly senior person’s work if it should have been carried out by a more junior person.

Some departments apply a “productised” approach whereby services provided are bundled into offerings for a fixed cost.   For fairly low cost routine matters this may be the best approach, but this does not really work for more complex matters, particularly those involving more than one fee earner.

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Other departments pre-quote each assignment for a fixed fee.  This will provide certainty for the client which may make them more willing to commit.  However, all the firms that we know that take this approach have experiences of significant unforeseen overruns that can have a significant effect on profit in the short term.

So no particular system is perfect, but perhaps a combination of fixed fee for matters which can be predicted with some certainty, together with a time cost approach for more unpredictable matters may be the best approach.

If this approach is taken, then some other practices might also help boost cash flow and profits.   For example:

  • Agreeing stage payments with a client – e.g. for a Probate x% up front, y% on obtaining the Grant and z% on completion.
  • Clearly agreeing a timetable which includes the settlement of invoices at specified dates and diarising the work flow.
  • Producing information gathering checklists to ensure that the necessary data is identified and captured easily.
  • Diarising billing routines so that bills are raised at “events” [e.g. the issue of the Grant], rather than waiting for the month end.

There is no perfect system of financial management, but there are always improvements that can be made to the existing one!

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