Legal Billing: Methods, Time Increments, Invoices and Software

Legal billing is how a law firm turns its work into invoices and gets paid: it records time and expenses against each matter, prices them under the client’s fee arrangement, sends the bill and collects payment. What sets law firm billing apart from other invoicing is trust money, because part of what the client pays may sit in a trust account that the firm can draw on only as it earns its fee.

Legal billing methods

Hourly billing

Each lawyer and staff member records time against a matter, and the invoice multiplies that time by the person’s rate. Attorney time billing depends on how carefully time is captured and on the increment the firm bills in.

Flat fees

A flat fee is a set price for a defined piece of work, such as a will or an uncontested filing. Where a flat fee paid in advance goes differs by state. California lets it go into the operating account if the client gets written disclosures, and above a set amount a signed agreement Cal. RPC 1.15(b) [1]; without them it goes into trust Cal. RPC 1.15 cmt. [3] [1]. Illinois sends fixed fees to the lawyer’s own account Ill. RPC 1.15(d) [2].

Contingency fees

The firm takes a share of what the client recovers, so the bill is worked out when the matter settles or ends. Time can still be recorded on these matters, to show what each one cost the firm.

Advance fees and retainers

A matter can start with an advance payment. Under the ABA’s model rule, which binds only where a state adopts it, fees and expenses paid in advance go into trust and come out only as fees are earned or expenses incurred ABA Model Rule 1.15(c) [3]. Florida holds money given for a specific purpose, including advance fees, in trust for that purpose only R. Regulating Fla. Bar 5-1.1(b) [4]. An evergreen retainer is one the client tops back up as the firm draws on it.

Legal billing time increments

A billing increment is the smallest unit of time a firm charges. Tenths of an hour are six minutes each; quarter hours are 15. Where each entry is rounded up to the next increment, the choice changes what short tasks cost.

The smaller the increment, the closer the bill is to the time actually spent.

From time entry to invoice

Law firm invoicing runs in four steps. Time and expenses are entered against matters. A lawyer reviews a draft bill, often called a pre-bill, and adjusts it. The firm sends the invoice. Then it records the payment, from the client or from the client’s trust balance.

Paying an invoice from trust

When a client has money in trust, the earned amount moves from trust to the operating account and the invoice is marked paid. The ABA’s model records rules allow an electronic transfer of earned fees to the lawyer only when they are not in dispute ABA Model Trust Account Records Rule 2, Comment [5], and Florida sets a similar limit R. Regulating Fla. Bar 5-1.2(e) [6]. The ABA’s comment adds that a lawyer may not hold funds back to pressure a client: a disputed part stays in trust and the rest is paid out promptly ABA Model Rule 1.15 cmt. [3] [7]. Under the ABA model, the client is also entitled to a full accounting on request ABA Model Rule 1.15(d) [3].

LEDES and UTBMS invoices

Some clients require electronic bills. LEDES is a standard file format for legal invoices, and UTBMS is a standard set of codes for the tasks and expenses on each entry. Smokeball, for example, produces LEDES 1998B invoices [8]. Several products keep LEDES for higher plans: PracticePanther on Business and Business Pro [9], MyCase on Pro and Advanced [10] and CosmoLex on Core and Pro, not Launch [11].

Getting paid: online payments and card fees

Card and bank payments raise two questions: which account the money lands in, and who pays the processing fee. An Illinois comment asks lawyers who take client funds by card, ACH or online systems to take reasonable steps to have them moved to trust immediately Ill. RPC 1.15 cmt. [5] [2].

The guidance on fees differs. A Florida ethics opinion says the lawyer pays transaction fees rather than taking them from trust funds, unless lawyer and client agree otherwise Fla. Bar Ethics Op. 21-2, Conclusion 3 [12]. Under the same opinion, chargebacks may not be taken from trust funds in any case Fla. Bar Ethics Op. 21-2, Conclusion 3 [12]. A New York State Bar Association opinion lets a lawyer pass a reasonable card fee to a client who was told and agreed in advance NYSBA Op. 1258A, Digest / Conclusion [13]. An Illinois State Bar Association opinion says that where card payments go into trust, the lawyer deposits enough of the lawyer’s own money to cover the fees ISBA Op. 14-01, Opinion (Question 1) [14].

Legal payment tools are built around this. Clio Payments deposits trust payments in full and takes the fee from the operating account [15]. LawPay says its fees are never taken from trust [16], and LeanLaw’s payment links take fees from the operating account [17]. The law firm payment processing comparison sets out each product’s rates, and LawPay pricing breaks down its fees.

Where software fits in legal billing

Legal time and billing software links each step: time entries tied to matters, invoices built from them, payments taken online and trust balances drawn down as fees are earned. The products differ most on which plans include the extras.

• Billing methods. Clio, LeanLaw and Smokeball each bill by the hour, at a flat fee or on contingency [18] [19] [8].
• Evergreen retainers. CosmoLex includes them on every plan [20], and LeanLaw handles them too [21].
• Split billing, one matter billed to several payers, sits on higher plans: Clio Signature and Elite [18] and MyCase Advanced [10], while TimeSolv lists it on both plans [22].
• Trust requests on bills. LawPay can add a trust request to an invoice [23].

The legal billing software comparison ranks eight products by what a five-user firm pays, and the legal time tracking software comparison covers timers and apps. For trust ledgers and reconciliation, see the trust accounting software comparison. Per-plan details are on Clio pricing, MyCase pricing and TimeSolv pricing.