Mother in Law: Lessons in basic financial hygiene

To continue my occasional series of columns actually about legal practice, I wanted to talk about the basics of financial hygiene – or, in other words, keeping your files in good shape to make your accounts team happy.

Profit and fees targets

Of course, you should have a number of different targets but, if I could give every lawyer in private practice just two, one would be to be nice to your team and the other would be to meet your fees target. Not chargeable time, matters opened or anything else – because you can’t pay the bills with those things. You can only pay the bills with fees – and to be very clear, I mean fees received. The vast majority of your career goals will only be reachable if you are, first of all, profitable. If there are barriers that stop you meeting your fees target, prioritise breaking those barriers down.

Costs estimates

You need to set costs estimates in your client care letters and either keep within them, or inform the client later that the costs estimate has changed. The Legal Ombudsman has lots of useful information on its website, with examples of how they have knocked down firms’ costs when costs estimates have been exceeded without the client being informed.

Time recording

If you are one of those enlightened firms which has been set straight by Scott Simmons (tinyurl.com/4d3bd7d4), then great. For the rest of us, we need to get our time-recording right. Your firm will probably have a time-recording policy, and in my experience that policy will usually say to record all the time you spend on a matter and then later make a decision whether to bill it or not. This is good advice. I am not a naturally good time recorder and am always looking for ways to capture my time more effectively, rather than getting to the end of a hard day’s work and realising I’ve only captured a couple of hours. One tip is to only work on one thing at a time and not be distracted by emails that you can ‘just deal with really quickly’.

WIP

On every file you should be able to bill the clients every month UNLESS one of a number of exceptions applies. For example, on a probate file, you may not be able to bill until the grant of probate has been received. At that point you should start billing every month. Or you might have agreed, on a property litigation file, that you won’t bill the client until the property has been sold or rent arrears recovered or whatever. In many of these sorts of cases, you should be considering whether your firm should be simply losing out on the cashflow of regular billing or if there is a way you can be compensated – with a success fee, or a higher hourly rate.

Billing

As I say, if an exception doesn’t apply, you should raise a bill every month on every file. Your firm has to pay salaries and other costs monthly, don’t forget. Ideally, you should be raising bills on different files on different days – again for cashflow but also so your accounts team doesn’t hate you at the end of every month. A good system is to raise a bill exactly one month after each file is opened, then on that day every subsequent month. I appreciate this can be a bit labour-intensive unless you have an IT system that assists.

Money on account, and early billing in fixed fee work

Where possible, get money on account. This shouldn’t cause a problem for anyone who is intending on paying you without a fuss.

If you are doing fixed-fee work, like a first registration or a lasting power of attorney, consider billing once you’ve sent the application off rather than waiting for the Land Registry or the OPG to do their bit.

BUT do NOT raise a bill until you know it is going to be paid within your firm’s payment terms. It being the end of your financial year is NOT a reason to raise a bill that you know won’t get paid promptly. If you do this you are a twit. If your line manager tells you to do this, he or she is a twit. Make them record in an email that this is what they want you to do. The problem is that your firm will have to pay the VAT, so overall it will be out of pocket. If you have followed all the above advice, you won’t need to do a big dodgy bill at the end of the year to meet your target.