How Should a Small Law Firm Bill So Time Turns Into Cash?

How often to send bills, and on what day

Bill every hourly matter once a month, on the same day, whether or not the matter feels busy. A fixed day makes billing a calendar event instead of a decision made when cash feels tight. Monthly invoices are smaller than quarterly ones, they arrive while the work is fresh, and a client who stops paying shows up after one missed invoice instead of three.

In California the client can ask for a bill. Business and Professions Code §6148, which under subsection (d) does not apply in listed cases such as a client that is a corporation, says in subsection (b) that the attorney “shall provide a bill to the client no later than 10 days following the request,” unless a bill went out in the prior 31 days, in which case the next is due within 31 days of that bill, and the client may repeat the request “at intervals of no less than 30 days.” A firm that bills monthly has answered before anyone asks. Other states have their own rules.

The calendar has four dates. The business days below are an example; the firm sets its own and keeps them.

• Every day: each timekeeper enters the day’s time before leaving. Time rebuilt on Friday from calendars and email comes from memory.
• Last business day of the month: billing runs a pre-bill for every hourly matter with unbilled time, and lists open matters with none, so a quiet matter is a decision, not an oversight.
• Third business day: attorneys return marked pre-bills. A missed date goes to the managing partner, not back to billing.
• Fifth business day: every invoice is out, to the client’s billing contact, with the due date the engagement letter sets.

Flat-fee matters bill on the stages written in the engagement letter, the day each stage is reached. Contingent-fee matters bill no hours, but Rule 1.5(c) requires a written statement at the end stating the outcome and, if there is a recovery, “showing the remittance to the client and the method of its determination,” so costs advanced belong on the same monthly review.

Billing increments and block billing: what clients and courts accept

Record time in tenths of an hour, one task per entry, with a description of what was done. In Welch v. Metropolitan Life Insurance Co. (9th Cir. 2007), a firm had block billed, which the opinion defines, quoting the Tenth Circuit, as entering “the total daily time spent working on a case, rather than itemizing the time expended on specific tasks,” and had billed in quarter-hours. The district court cut 20 percent for each. The appeals court affirmed the quarter-hour cut, upholding the finding that counsel “billed a minimum of 15 minutes for numerous phone calls and e-mails that likely took a fraction of the time.” It agreed a court may reduce block-billed hours, because block billing “makes it more difficult to determine how much time was spent on particular activities,” but vacated that cut for reaching all hours when “barely more than half” were block billed.

For court-awarded fees, the Supreme Court set the standard in Hensley v. Eckerhart (1983): records kept “in a manner that will enable a reviewing court to identify distinct claims,” and hours that are “excessive, redundant, or otherwise unnecessary” left off, as a lawyer in private practice “ethically is obligated to exclude” them. The U.S. Trustee Program’s fee guidelines, at 28 CFR Part 58, Appendix A, ask for time “kept contemporaneously with the services rendered in time periods of tenths of an hour,” with services “not combined or ‘lumped’ together” beyond small tasks that “do not exceed .5 hours on a daily aggregate.”

A client who never sees a courtroom reads an invoice the same way: a three-hour entry with five tasks in it cannot be checked, and an invoice that cannot be checked gets questioned. Courts review time in fee-shifting, bankruptcy and some other matters, each under its own standards. Not legal advice.

What a law firm invoice should show so it gets paid

An invoice gets paid without questions when the person approving it can see what was done, by whom, at what rate, and what is owed. California’s §6148(b) sets a floor there, outside the subsection (d) exceptions: bills “shall clearly state the basis thereof,” the fee portion shows “the amount, rate, basis for calculation, or other method of determination,” and the cost portion must “clearly identify the costs and expenses incurred and the amount.” The list below covers that and what a payer needs.

• Header: client, matter name and number, billing period, invoice date, due date, responsible attorney.
• Each time entry: date, timekeeper, one task, time in tenths, rate, amount; then a summary of hours and rate by timekeeper.
• Expenses, apart from fees, each with date and amount. For in-house charges, the comment to Rule 1.5 allows “a reasonable amount to which the client has agreed in advance” or “an amount that reasonably reflects the cost incurred by the lawyer.”
• Flat-fee stages: the stage reached and the amount the letter set for it.
• Balances: previous balance, payments received, this invoice, total due.
• Money held in advance: the balance before, the amount applied and the balance after. Rule 1.15(c) has advance fees held in trust “to be withdrawn by the lawyer only as fees are earned or expenses incurred”; the state’s version governs how.
• How to pay, and the direct line of the person who answers billing questions.

Send it to the person who approves bills. A company client may route invoices through accounts payable, and an invoice that reaches only the business contact can sit without anyone deciding not to pay. Ask for the billing contact at intake and put it in the engagement letter.

When, and how, to raise billing rates

Raise rates on one date a year, in writing, under a clause the client accepted at the start. The comment to Rule 1.5 says: “Periodic, incremental increases in a lawyer’s regular hourly billing rates are generally reasonable if such practice is communicated clearly to and accepted by the client at the commencement of the client-lawyer relationship.” Modifications a lawyer seeks that “significantly increase the lawyer’s compensation, absent an unanticipated change in circumstances, are less likely to be reasonable.” If the letters say nothing about rate changes, ask ethics counsel before a new rate touches open matters.

The rate itself is the firm’s call under Rule 1.5(a), whose factors include “the fee customarily charged in the locality for similar legal services.” Courts look at the same market: in Blum v. Stenson (1984) the Supreme Court said fees under the civil rights fee statute “are to be calculated according to the prevailing market rates in the relevant community.” This guide found no government source that publishes what a small firm should charge its own clients. The firm’s own records are the better guide: for each timekeeper, hours recorded, hours written down at pre-bill review, and dollars collected against dollars billed over the last twelve months.

• Name one effective date a year in every engagement letter.
• Send each client a letter before it, as far ahead as the letters promise, with each timekeeper’s old and new rate.
• Change rates in the billing software on that date, not before, so no pre-bill mixes them.
• Leave flat-fee and contingent matters alone; their price is in the letter.

Illustrative example: a hypothetical four-lawyer firm finds one associate’s time written down by a fifth at each pre-bill review, while a partner’s invoices are paid in full within terms. Raising both rates alike bills more for time already being cut. The associate’s time entry and staffing come first; the rate question after.

What the engagement letter should say about billing, payment and withdrawal

The engagement letter turns every practice above into terms the client agreed to. The comment to Rule 1.5 says: “A written statement concerning the terms of the engagement reduces the possibility of misunderstanding.” Some states require one. Outside contingency cases, California’s §6148(a) requires a written contract, with a copy signed by both, where the total expense to the client is reasonably foreseeable to “exceed one thousand dollars ($1,000),” stating the basis of compensation, the general nature of the services and each side’s responsibilities, subject to the exceptions in §6148(d); under §6148(c) failing to comply “renders the agreement voidable at the option of the client.” The billing terms, in plain words:

• Who works on the matter at what hourly rate; or the flat fee and its stages; or the contingent percentage and how expenses are deducted, in a writing signed by the client as Rule 1.5(c) requires.
• The increment, a tenth of an hour, one task per entry, and which expenses are billed.
• The billing day, the due date and the billing contact.
• Any advance: held in trust, withdrawn as earned, the balance to keep on deposit, and when the client is asked to top it up.
• The annual rate review: the effective date and the written notice before it.
• Unpaid invoices: a written warning first. What the rules allow after that, from the warning to withdrawal, is in the guide to a law firm client who stopped paying.
• Fee disputes: the comment to Rule 1.5 says that where a bar procedure such as arbitration is mandatory “the lawyer must comply with the procedure,” and where voluntary should “conscientiously consider submitting to it.”

When billing is not the leak, and where the Review fits

If every hourly matter bills on the same day each month, pre-bills come back on time, write-downs are small and explained, and invoices are paid within terms, the billing side works. A single late payer is a phone call. A fee dispute, a trust question or a withdrawal belongs with ethics counsel, not an operations review.

For a firm that cannot say how long time sits before it is billed, or how much is written down and why, the Revenue Review counts this under the Invoice → Payment hand-off. From read-only exports of time entries, pre-bills, invoices and payment dates, de-identified wherever possible, it measures the days from work to invoice and invoice to cash by matter, attorney and practice area, lists matters skipped in a billing cycle, and totals write-downs by timekeeper. It never opens the trust account and gives no legal or ethics advice. It takes two weeks and ends in a written report the firm keeps.

The next step is a free 20-minute call. Below about $1 million a year in fees, the Review’s price does not fit the arithmetic, and the call says so plainly.