Alternative Billing in the Post-Recession

Alternative Billing in the Post-Recession

It is very unlikely that a seasoned business owner today would disagree that the economic downfall of 2007 has changed the business landscape drastically. Decision making – at all levels – is fiscally driven and the legal industry spends countless hours explaining (or justifying) the hours billed. Law firms have traditionally experienced comfort and security with hourly billing models, but these models are beginning to dissipate and firms are adopting Alternative Fee Arrangements (AFA’s) in order to maintain clients. AFA’s have broadened the client and firm’s opportunities to include an array of alternative billing options.

Notably, one of the most popular AFA’s includes flat or fixed fee billing. Flat or fixed fee models can be structured in stages and payable at milestones set in the agreement. Flat or fixed fees are commonly paired with success fees. With a success fee arrangement, a reduced based fee is paid up front while another portion is awarded for successes achieved. The success fee is used to incentivize positive outcomes for the client. This fee arrangement, which focuses on value efficiency rather than hours worked, benefits both clients and attorneys while increasing the likelihood of success. In order for success fees to work effectively, there must be communication between the attorney and the client defining what constitutes each level or marker of success. Once an AFA is identified, the next step is to measure the success of that alternative billing.

Billie Tarascio of Modern Law, PLLC, and panelist from our May Roundtable Discussion event, wrote an interesting article, “Making Alternative Fee Billing Work,” that was published in the Law Practice Magazine. In Tarascio’s article she considers a number of goals and methods in which a firm can measure the success of alternative billing. For example, one of the goals considers reducing account receivables, uncollected fees, and overhead expenses. In order to determine if this method is working, Tarascio recommends tracking the time the attorneys spent prebilling till the time the invoice is sent to the client. Tarascio stated, “We need to track the time spent answering the phone to collect payments or making phone calls to track down the money owed.” In addition, Tarascio added, “We also need to look at the time spent discussing payments by both the staff and attorneys. This is nonbillable time that is costing your firm money.” With this goal and others in mind, it is crucial to continually measure the success of your alternative billing.

If the economic downfall proved anything, it is that sometimes unfortunate circumstances can lead to innovative new practices. AFA’s are becoming commonplace in the legal industry and it provides attorneys with the flexibility and comfort of knowing that when difficult times arise, they are able to modify their billing to not only meet the needs of the client but also to reward the attorney with the work they have completed.

To read more from Tarascio’s article: http://www.mazdigital.com/webreader/43138?page=46