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Transparency: the clear challenge for law firms
Blog //26-06-2023

Transparency: the clear challenge for law firms

by OneAdvanced PR, Author

With the availability of information and the advancement of customer experiences across commerce in most if not all industries, particularly as digitisation and e-commerce becomes ever more engrained into our day-to-day customer relationships, law firms are experiencing a wide range of challenges which relate back to needing to be more transparent.

In this article, we will highlight some of the challenges firms are tackling which are a result of a lack of transparency with clients, particularly around billing.

Invoice write-offs are on the rise

Being able to have bills paid on time and without issue is of paramount importantance to ensuring effective cash-flow and the smooth operation of any business - law firm or not. With that in mind, it’s particularly concerning that a recent report into billing and technology in the legal field found that 10% of revenue was being written off by law firms in the UK and North America between 2020 and 2021.

Furthermore, 75% of North American firms said that they had experienced a rise in invoice write-offs, and not too much less in the UK market. These numbers underscore the need for more transparent billing practices, as financial losses resulting from write-offs can severely impact a firm's profitability and client relationships. By implementing transparent billing processes, law firms can mitigate risks, identify potential billing issues, and proactively address them before they escalate into revenue write-offs.

Rate discounts the largest form of profit leakage

Another significant challenge facing law firms is the leakage of profits through rate discounts. Rate discounts account for a substantial portion of profit leakage in North American firms, with 34% of firms identifying them as the primary source. These discounts erode a firm's financial health, potentially leading to reduced resources for growth and development.

These work in a similar way to invoice write-offs where firms are ensuring that clients pay most of the billable work actioned, rather than engage in litigation or losing a client long term. Removing the element of surprise within billing processes helps firms avoid write-offs and rate discounts. Understanding the number of hours likely for a case to take, the fees for that, and constant communication with the client in order to avoid surprise billing will allow for clients to feel more in control of their billing and more likely to pay the amount in full - keeping your law firm ticking over at a greater percentage of profit retention. Not to mention removing the time-costs, logistical burdens, and client satisfaction risks of engaging in negotiations over ad-hoc discounts.

Regulatory pressures

The regulatory landscape adds further impetus for law firms to prioritise transparency. Regulatory bodies, such as the Solicitors Regulatory Authority in the UK, have introduced transparency rules that mandate law firms to adhere to clear billing guidelines in certain areas of law. These guidelines are designed to enhance transparency, accountability, and fairness in billing practices. Non-compliance with these regulations can have severe consequences, including damage to a firm's reputation and fines.

Additionally, the introduction of Outside Counsel Guidelines, often enforced by corporate clients, accentuates the importance of transparency in billing practices. Law firms that can demonstrate adherence to these guidelines will not only strengthen client trust but also position themselves as reliable partners in an increasingly competitive legal landscape.

By adopting transparent billing processes, law firms can mitigate financial losses, enhance client trust, and position themselves as leaders in an evolving legal landscape. Investing in technology solutions that automate billing processes, monitor billable hours accurately, and facilitate transparent communication can significantly contribute to overcoming these challenges.

By embracing transparency, law firms can fortify their financial stability, ensure compliance with regulatory guidelines, and build enduring client relationships based on trust and accountability.

This article is part of our 'Time and transparency' series. You can read our whitepaper from this series titled: 'Transparency: the importance of effective time recording' that explores the themes from this article in greater detail by clicking here.

Blog Legal
OneAdvanced PR

OneAdvanced PR

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