Billing can be tedious and time-consuming—but it doesn’t have to be. With the right processes in place, you can be on your way to streamlined billing that gets your invoices paid quickly.
We got together with Amanda Hyuck from AffiniPay, the company behind LawPay, to find out what key areas law firms can focus on to improve billing, reduce the number of accounts in collections, and boost cash flow.
CosmoLex (CL): Let’s go ahead and jump right into it. These questions are directly from lawyers, so we’ll take the first one. What are the most important billing reports that my firm should be reviewing?
Erica Birstler (EB): I’ve worked with law firms over the past eight or 10 years about how to run their practice and a lot of it does come around billing. That is a big functionality that you do day-to-day and after all, that’s how you get paid. So it very much should be at least a core focus but what’s interesting is most of the time, when we talk about billing most people think of time tracking and invoicing, the day-to-day entry. But there’s so much information that you can do an analysis on to make better decisions based on and a lot of that reporting is on the billing side.
Aging Reports is a very popular term and type of report that’s looked for so that you can know your balances or past due by 30-60-90 days and come up with a plan to address those. But also your WIPs, or your work in progress—that’s the items that you’re going to be billing eventually. You may have a WIPs report, also known as a pre-bill report, that you can use to review your items before you actually generate those invoices. It helps you to make sure all your items are captured accurately.
Retainers are very important, especially if your retainer is in the trust account. You may not really think of that as a billing function, more of a trust account function, but that’s the money that you eventually likely will earn. So you want to make sure you’re keeping an eye on what those retainer balances are. Is that going to deplete? A good practice is evergreen retainers, making sure that money is always there, and that way you can seek replenishment before they deplete.
CL: One follow up to that would be, do you think there’s a best practice to generating these reports. know that obviously CosmoLex as a software does help you generate reports, but outside of that do you suggest they use an external tool of some sort of do that? Do you think this is something they can do manually?
EB: I think that automation is helpful and that could be everything from Excel to an advanced accounting software. If you’re keeping written ledgers or written records that’s when reporting gets really difficult because there’s no way to really consolidate or analyze that data in an easy way. If you’re like a master at Excel, you can create a spreadsheet for your WIPs and a spreadsheet for your AR, but you need to be able to analyze those numbers against each other.
There are a lot of billing tools out there. I usually suggest legal-specific tools, but it does depend on your functions.
CL: What is the best way to avoid billing disputes? Because I think that in that manual scenario where you’re keying in things there’s a high probability of error starting to creep in over a period of time.
EB: When we’re talking about disputes they usually stem from questions from your clients. That’s usually the root cause – either there’s a question they didn’t get an answer for or they didn’t like the answer or you’re kind of avoiding them. Overall what’s really important is to have a solid matter record. If John Smith calls you on the phone you should be able to know everything associated to his file.
It can be a paper file and it’s preferred to be electronic, but just any way that you can have a good audit trail between all of the different activities and also be mindful of your relationship with your client. At the end of the day, it’s a service business. A good relationship will lead to not only maintaining that client but referrals and further business down the line.
So you want to be sure to be open, communicate clearly with them, ask if there are any questions they have and get back to them as soon as possible just to make them feel comfortable. You may have a client that’s never been through a legal situation before where it’s very unknown to them, and they just want to make sure you’re handling it the best way possible and not trying to get one over on them.
CL: Amanda, any thoughts from the of the processor side of things when credit cards get involved, so to speak?
Amanda Hyuck (AH): Erica did a great job of covering a lot of the things. One thing we talk about is timely billing. Don’t wait until your client has forgotten the wonderful service that you provided them before you get the invoice out to them. And another note that I jotted down was when electronic transactions get involved make sure that you’ve got a credit card authorization form that is signed with your clients just in case any dispute does come up.
CL: I agree and think that extends to a lot of other things. But we’ll move on to question three: how can tools and technology help to make that billing process more efficient?
AH: I think that’s a really important point and something CosmoLex and LawPay both bring to the table when we’re talking specifically to law firms is the way you guys handle the trust accounting. I feel like that can be a big expense of time that folks spend even just worrying about whether or not they are accurately handling their trust accounting. Then, from the payments side, it definitely reduces the amount of time you spend on collections and an online payment tool like LawPay can help you do that.
Another thing is to automate the scheduling of payments. Now we have features like you can store a credit card and set up an agreement with your client that on the 15th of every month you’re going to send an invoice and automatically debit their card for that invoiced amount. It’s convenient for the cash flow of your business but also that’s kind of how people expect to pay for things now.
CL: I think it’s worth mentioning because I do a lot of shows and events and in talking with lawyers hear a lot, especially from the payment side of things, is the trust accounting piece, feeling that comfort level. Could you touch on LawPay’s ability to process those correctly? We get a lot of questions on that.
AH: Yeah, definitely. So I always refer to it as our secret sauce. It’s really what differentiates us from a credit card processing solution that might work for a barber shop or a hair salon. They don’t have the concern with, trust accounts that a law firm does. So the way we ensure compliance account is we don’t deduct any fees from an individual deposit that goes into a trust account. We actually don’t take any fees from any individual deposit regardless of where it ends up, but specifically we design this to protect trust accounts.
Most payment processors are going to take their 2-2.5% processing fee out before the transaction hits the merchant deposit account. At LawPay we wait until the end of the month and essentially float all of the fees for our merchants and then make one debit from a designated operating account. That extends also to any refunds or chargebacks those also will not come out of a trust account. We guarantee that nothing will be debited from a trust account and that everything will be deposited in full.
CL: Awesome, thanks. So is accepting credit cards online or through an email link secure?
AH: I think this is a really interesting question because certainly I am at an age and a generation where I really think about using a credit card still means getting it out of my wallet and swiping to pay for something. And that is a smaller and smaller part of the way that we use credit cards in general also it turns out is becoming a less and less secure way. Whereas at the beginning of e-commerce people had concerns about the security of using a credit card to pay for something online, and now it is more secure than a swipe or a dip.
We can get into lots of reasons for that. Something installed on the gas pump, right? When you swipe your credit card and now your card information is compromised. And the beauty of an online solution is that the credit card processing company keeps all of that card data encapsulated in their system. It keeps you as the law firm from having to store any of that information on your side, from having any of that sensitive card information ever touch any of the servers or networks or anything that is associated with your business.
CL: And it’s all contained and secured by the credit card processing company. The same thing extends to our relationship with CosmoLex. CosmoLex has chosen to work with LawPay because we keep the burden of that security off from them, as well. And we have bank grade security protocols in place and go through annual audits and really understand how to keep this sensitive information from getting into the wrong hands. So it’s kind of an interesting idea that we are now probably safer and more secure and putting our businesses at less risk by accepting payment with a credit card online rather than in person. A part of this is PCI, which is a mandatory standard that if you accept credit cards in your business, you need to be PCI compliant. It’s a pretty simple set of guidelines and as long as you adhere to those guidelines, which include not keeping any sensitive card data in your office.
So the next question would be is – what can a lawyer say to their client to let them know that “Yes, it is secure and that it is a good way of going forward”? I think that’s the pushback that we hear from time to time, “Oh, my clients wouldn’t do that.”
AH: Oh, that’s really interesting. Again, going back to what I said earlier about there’s a lot of research out there and lots of data that shows that people that consumers feel more secure paying for things online than ever before.
I think PCI is known by merchants and people who expect credit cards and sort of less known about by the general public. But just being able to confidently say that you are PCI compliant, and that your credit card processor assists you in making sure you maintain that compliance. For example, we have never written down your credit card information. It is not stored in any of our system, we rely on a bank right security company to store and transact all of this information. I think those would be some pretty compelling way and it’s not hard these days to Google PCI if a client wanted more information and to understand a little bit more about what it means to be PCI compliant, as a merchant.
EB: I wanted to add to that just for a second because I think that even from a software technology perspective this is very similar to the conversation of cloud. Anything online in general, they’re going to have similar questions about is, “Is it secure? Can I trust it?” And often I try to put it in a little bit of perspective to say, “Well do you do online shopping or do you pay your bills online? And often the answer is, “Well yeah, of course I do.” And we say, “Well, this is the exact same thing.”
AH: Yeah, thanks for adding that Erica. I think that’s a great point. I also just think in general, it also helps to have a trusted relationship with your clients and part of building a trusting relationship with your client is providing modern services that are backed up and endorsed by entities like the State Bar Association and the ABA. And so sort of making sure that you’re talking about those credentials as well can probably be a reassuring component for anyone who has concerns.
CL: So what would you say I should look for in a credit card processing company or service?
AH: Yeah, this is an interesting question and start by talking about it specifically, as we touched on already how a law firm accepting credit cards needs to make sure that they’re using a product that will protect their trust accounts. As I explained earlier, LawPay goes about doing that by not devoting any fees at the time of the transaction.
And I just want to reiterate one point that it’s not enough to make sure that your credit card processor doesn’t take any fees for deposits. You also need to make sure that they’re not taking any fees if there’s a chargeback.
It’s sort of the elephant in the room is that it’s going to cost you money to process credit card transactions so there’s no way to get around the fact that there is going to be a pricing conversation that needs to happen. You need to do your research and understand the different programs that are available and what it’s going to cost you.
Again, that PCI compliance is very important and you want to work with a provider who is going to support you in maintaining that compliance. The third thing is if you’re trying to make a transaction, technology is great and it’s amazing, but things can go wrong, there can be a monkey wrench thrown into the works. So whether it’s because of the end user’s card has something wrong with it, or there’s a bad connection, you need to be able to pick up the phone and call somebody who can help you figure out how to get this transaction to go through.
EB: I wanted to actually add to that quickly. If somebody is looking at CosmoLex for example, they say, “Well can I use Square, or PayPal or LawPay or what are your thoughts on that?” And I tell them first is understanding what the firm’s needs are. Just like when you’re looking at any type of technology, this is a service and you want to make sure that that service fits your needs.
CL: How about – I don’t have a set collections process. Any tips?
EB: Well that’s an interesting topic to get into, because it does include payments. Of course, that’s mainly what the crux of this is, but usually it’s around not getting paid, which is the struggle. I think that for service businesses in general, but specifically law firms, there can be such a struggle if not maintained properly to get paid from your clients and that can be frustrating. My biggest piece of advice is to understand the difference between proactive activities and reactive activities.
Proactive activities that you may not even realize influence your collections, like having that timely routine billing, can set that expectation for your client. If you get your bills out quickly, within the first few days of the month, as opposed to the first few weeks they have longer to review it, to ask their questions and hopefully you’ll get paid quicker. You want clean professional bills that they can understand and almost predict the questions that they ask.
So you need to have that balance, but you don’t want to have two words on an invoice. And they’re like, “He’s charging me $10,000 for a two-word description. That doesn’t make sense to me, I’m not paying my bill.”
In the very beginning, we talked about in reporting knowing what your AR is and the aging on that AR. But also think of this if you have WIPs. Let’s say you have a WIP balance of $3000 and for that client you only have $1000 in trust. If you’re not paying attention, if you’re not actually looking at these numbers, there’s a collection issue there that’s completely preventable but you’re not doing anything about it.
CL: Thanks Erica. Now for the hard questions – what are card processing fees and what do I get for those fees?
AH: It can be a lengthy explanation. And so I want to just say from the outset, that we have a lot of really great in-depth information about this topic on our LawPay blog. So I can give an overview of the categories and who gets them and what you get in return for the fee that you pay. But if you anybody out there wants more information, we can certainly get into the weeds on the fees.
But just in general when we talk about credit card processing fees, we always start by talking about interchange. Interchange makes up the bulk of the processing fees and it’s a rate and it’s set by the card brands. The rate varies depending on several things, including what type of card it is. So there are a lot of factors that influence the interchange rate but these rates are set by the card brands and they’re pre-determined and they’re non-negotiable.
It’s just sort of a fact of life of using credit cards. The second category of these that we talk about are dues and assessments, and they are also charged by the card brands. The card brands use dues and assessments to cover things like access to the payment network and handling any foreign currencies and conversion fees. Again, dues and assessments are non-negotiable and set by the card brands.
And then finally, there are the category of merchant processing fees. This is where you can find variation and where there are different programs set up between providers. You can find processing agreements that are going to charge one flat fee regardless of the card brand or the transaction type. At LawPay we have a two-tier program, so that’s based on card type.
And then of course there is something you probably or may have heard of called Interchange Plus, which means you’re going to automatically pay whatever that interchange rate is plus a predetermined amount. There are a lot of different ways that different processors will charge their merchant processing fees, but again these fees go towards things like account services, software development, the support that you receive, anything like the support of your PCI compliance, equipment that you might use to make transactions, etcetera.
CL: Finally in the pre-selected questions and we touched on this a bit – how are credit card processing fees handled when accepting payments into trust?
AH: Yeah, we definitely have touched on this a couple different times, but I will go into it again just to explain. In most cases if you were the owner of an ice cream shop and you accepted a credit card for a banana split and it was $5, your credit card processing partner would deduct whatever percentage you had agreed upon in your contract. They would take that percentage right out of the $5 before you ever saw it.
So the person enjoying the banana split runs their card for $5, you’re going to see $4.75 deposited into your account. That’s sort of the typical way a processor takes fees for a transaction. At LawPay, we add up all of those fees and at the end of the month we deduct them at one time out of a designated operating account. We are guaranteeing that your trust account never has anything debited out of it, that if there is a trust request for $500, there is $500 corresponding in the account with no fees debited. Same thing if, heaven forbid, there is some sort of a dispute and the chargeback is issued that chargeback is going to come out of the designated operating account. Nothing will come out of the trust account.
I talk all the time in regards to the importance of how the fees are handled and one of the main areas where law firms struggle is not only from a compliance perspective, but from a reconciliation perspective as well. Think of how these transactions, whether it’s your business account, if your client gives you a credit card you ideally want to reconcile the totals that actually took place. Very often we get into matching. You may have ten Visa transactions that take place in one day that gets deposited into your bank account at once.
EB: If fees are incorporated into that and there are ten different transactions, making sense of that can get really complicated. And then even if you’re not doing the reconciliation, even if it’s a bookkeeper or somebody else, that becomes quite a chore. It might even be with the business account, but with the trust account especially, that’s where you can get into a lot of hot water because you end up not actually accurately knowing what is client’s funds, what accurate deposit they have, what’s available, as opposed to having an exact amount in the amount taken out of a designated account.
AH: I love the accounting brain that Erica always brings to our conversations. You’re spot on. It’s like an accidental bonus of our system for protecting trust accounts is the simplification of reconciliation. So yeah, thanks for pointing that out, Erica.
CL: Awesome. So that’s the end of our pre-selected questions so I will give… Or turn it over to Amanda to give us a minute or two about LawPay.
EB: At CosmoLex we are a little bit more on the practice management side of things. Today we did a strong focus on billing, which is very important, but you also have other functions like your back office accounting, your daily activities and those items every business needs to worry about that, but also having that together with everything else that is legal-specific. So we provide one solution that has all of these functions together, cloud-based and legal-specific. And we do, as Amanda mentioned, have an integration with LawPay so that way you can email or share your invoices, have them paid online and that will communicate right back into the system. So it’s a pretty interesting integration that’s been very useful to all of our users. If you want to learn more about CosmoLex, maybe have a demo or just have some questions, feel free to reach out and we’d be happy to help you.
CL: There were a few questions that didn’t make it into the pre-selected questions, but if you guys are ready, we can jump right into them.
So who should be responsible for the billing work in the office?
EB: There’s not really a black and white answer to that. Sometimes it depends on the size of your firm and the resources that you have. I know many solos that are one man or woman shop, and they’re kind of doing everything themselves. But there’s also those that have support staff and paralegals and even bookkeepers that get involved in the billing portion as well.
I think it’s important to understand the workflow of billing, all the different steps and where it makes the most sense. Like for instance, if you have a law firm that has a few attorneys and support staff, often the attorneys are only involved in time and expense entry. That’s it. There’s somebody else handling the rest because they’re trying to increase the efficiency of those attorneys so they can just enter their time and be on with their day.
CL: Awesome. A more complicated question, but straightforward. How do I best get clients to honor a payment schedule?
AH: I think Erica touched on a lot of really good points earlier in one of the questions… One of the questions we talked about earlier and I had made a few notes at that time about just really communicating your expectations at the beginning of the relationship, getting an agreement on file and a credit card on file and an authorization form on file. Don’t forget when you’re there to solve a legal problem that you’re also a business and that you need to think about how you’re going to get paid for the work you do. Setting those expectations at the outset, good client communication, a straightforward agreement, and, if you can, get a credit card on file.
EB: I definitely think communication is key, but also consistency. You need to consistently have a routine follow-up with your clients so that they know that you mean business. If you’re not consistent and you don’t take it seriously, they’re not going to take it seriously. You will have delinquent clients, you will have people that you need to waive balances for, you will have people that are going to be a struggle, but that proactive piece of doing everything possible to grow that relationship, I think will really help in the long run.
CL: Well thank you so much guys. That is the end of today’s presentation.
To create a consistent and healthy cash flow, focus on improving your billing process. Clear invoices, accepting credit cards and keeping an eye on retainers are just a few ways you can get paid faster. Even better, automating some of these tasks can free up valuable time that can be put toward billable hours.
For even more information on how to improve your billing practices, check out the full webinar: Ask An Expert: Better Billing & Faster Payment