Billing Clients and the Billable Hour

Billing clients! The bane of every lawyer. Get it wrong and you could face disciplinary action. One Wyoming lawyer found this out when her routine practice of billing in 15-minute intervals was deemed excessive. Notably, it wasn't the minimum 15-minute billing increment that was the problem, but rather the fact that she billed two 15-minute charges in the same 15-minute period.

The billing of clients begins with a fee agreement. Most, if not all, states have specific requirements for what must be included in the fee agreement and they must typically be in writing.

At a minimum, a fee agreement should clearly state the basis of compensation, and the nature of the of the legal services to be provided. These two items are then repeated on the lawyer's bill to the client, which should be sent to the client at least every thirty days or sooner, if requested by the client.

Read on for practical information on billing structures and tips for how to prepare effective billing statements.

The Basis of Compensation

The basis of compensation is essentially the agreement as to how you will be compensated. This can include a billable hour agreement, a contingency fee agreement, or any other method agreeable to your client. There are no hard and fast rules for which one works best, but certain types of cases lend well to certain methods of payment.

The Billable Hour

The standard method of lawyer billing is by the hour in six-minute intervals. The billable hour works well in cases where you don't expect to be paid until the close of the action. An attorney may want to use this method for defense cases, family law cases, or complicated negotiations. Some states even require that certain types of cases be billed hourly. Check with your bar association for the statutory fee requirements in your jurisdiction.

Contingency Fee

A contingency fee arrangement is typically used by plaintiff's counsel in personal injury actions where the attorney expects to take a certain percentage of any recovery. This type of fee agreement can be used anytime there's an expected sum that will be recovered. However, it can be risky because it's possible that there will be little to no recovery and the attorney will not be paid in full or at all.

Fixed or Flat Fee

A flat fee arrangement is an agreement where the attorney agrees to provide services for a set amount of money. The type of cases that work best for flat fees are those that are routine and have a specific set of tasks or end product. Estate planning, bankruptcy, criminal cases, and transactional matters are some examples where fixed fees are used for billing clients.

Lien on Future Judgment

The Model Rules of Professional Conduct prohibit attorneys from entering into a business transaction with a client, unless:

  • The terms are fair and reasonable and are fully disclosed in writing;
  • The client is advised in writing to seek independent counsel; and
  • The client gives informed consent.

In addition, Model Rule 1.8(i) allows an attorney to take a proprietary interest in a future judgment which could be construed as entering into a business transaction with a client. While the model rules allow these sort of liens, not all states do, so it's important to check with your bar association for information about your state's requirements.

Hybrid Billing

Nothing prevents an attorney from combining more than one type of billing method for the same matter. It just needs to comply with any state restrictions or disclosure requirements. And of course, it needs to be fully explained in both the fee agreement and the billing statement.

Billing Clients: The Billing Statement

Whatever compensation method you choose, your billing statement must still provide a clear and concise description of your activities. Even if you don't use the billable hour, getting into the practice of justifying the time you spent on a case will be important. After all, you may have to justify your time to a judge or jury someday.

At a minimum your bills should clearly identify:

  • The fee, expense, or cost amount;
  • The rate charged; and
  • The basis for the calculation.

However, to prepare an effective billing statement, this bare minimum of information is not enough. You should describe with particularity what services were performed and the time spent on each task. You're going to have more conversations with your client about what's in your bills than almost any other subject, so the more information you have about what you did, the easier those conversations will go.

Your bills should answer the following questions for each billing entry.

What occurred?

Describe the event that triggered the billing item in a concise statement (e.g. "received telephone call" or "attended court conference"). Then, in a few concise sentences state what the phone call or letter was about. Provide the highlights of the document you prepared.

Who was involved?

You'll want to include the names of all of the parties involved in any activity. Here are a few examples:

  • Telephone call from opposing counsel to attorney handling the matter with special master on the call.
  • Letter prepared to opposing counsel with copy to the court.

Even if you're billing for an activity that didn't involve other people at the time, it was still being done for someone. Always include names and say who they are; it lends credibility to your billing activities.

Why were you doing this activity?

You had a purpose for each action that you took and you need to tell the client what that was. Did the client request a particular activity? Was the activity required by the court? State the purpose in your billing statement as this lends further justification for your entry.

How much time did you spend?

Finally, you need to tell the client how much time you spent on each task for which they're billed. Break each task into the smallest chunk of time that you can. Clients hate to be billed for huge blocks of time with no clear idea of how you spent your time. If you can't break a chunk of time down, then you need to provide detailed descriptions of what you did.

Once You're Done Billing Clients, Develop a Marketing Strategy with FindLaw's Help

Providing detailed billing statements is a lot of work, but it's worth it. The time you spend preparing your statement, means less time explaining your bill to your client and more time for developing new clients. Consider utilizing FindLaw's Integrated Marketing Solutions to help shape your marketing strategy to find the new clients that you need. Find out how we can help today.