Future Law

Clio Identifies Small Efficiencies That Can Add Up Big for Law Firm Revenue

Download CSV button on laptop screen. Law firms looking to improve collection rates should consider online billing and payment options, according to new data from Clio’s 2023 Legal Trends Report. And their clients will appreciate the efficiencies.

According to 2021 data from Clio, a legal technology company, 66% of consumers said they prefer to make payments for legal services online, while roughly 60% said they are comfortable viewing and sharing documents with attorneys through email or secure client portals.

Each year, Clio summarizes trends impacting the legal profession in its Legal Trends Report. The report is based on data from legal professionals who use Clio’s technology platform in the U.S., as well as a survey of 1,446 U.S. legal professionals and 1,012 adults in the general population.

In 2023, Clio’s Legal Trends Report explored how law firms and clients have navigated inflation concerns, as well as how small inefficiencies may be impacting law firm cash flow and business management.

A boom in lawyer productivity

While inflation and lending rates have risen over the past few years, so too have lawyer caseloads and the cost of legal services.

Hourly rates for lawyers have increased 28% since 2016 (from $256 to $327), according to the Legal Trends Report. Additionally, legal professionals on average are working over 25% more cases, recording 35% more billable hours, and billing and collecting over two and a half times more than they did in 2016.

This means the average legal professional is earning almost three-quarters more revenue for their firm in 2023 than in 2016. There has clearly been a “massive boost in lawyer productivity,” Clio said.

The reason? Based on its data, Clio said the time law firms spend adding small efficiencies is leading to significant long-term gains.

Prioritizing billable work

With all the responsibilities that come with running a law firm, lawyers struggle to dedicate time to the most important factors—delivering legal services to clients and collecting on these services so they can continue to help the public.

Lawyers spend just 37% of their day on billable work (based on an 8-hour workday) and collect payment for 89% of that time, the Legal Trends Report said.

While time dedicated to billable work is up slightly since 2016, Clio points out that nearly two-thirds of a lawyer’s workday is underutilized when it comes to billable work. This time is likely spent on administrative, business development, or other tasks associated with running a business.

Finally, when lawyers do bill clients, they struggle to get paid. Forty-one percent of legal professionals said clients don’t pay on time and almost one in four said too many clients don’t pay at all, the Legal Trends Report said.

When a law firm’s expected revenue sits in “lockup”—or an unbilled or unpaid state—it can severely impact cash flow and the firm’s ability to pay its bills, while adding the administrative burden of chasing client payments.

Based on its data, Clio found that law firm revenue sits in lockup for an annual median total of 97 days.

How to add small efficiencies

Despite the boost in lawyer productivity, Clio says adding small efficiencies can help lawyers dedicate more time to billable work and boost their utilization and collection rates. Here are some recommendations from Clio:

  • Get bills out on time. Waiting to bill clients presents a greater risk that they won’t be able to pay, Clio says. Law firms should examine how they send bills and improve processes for getting bills out on time. Other considerations for improved cash flow may include billing clients smaller amounts regularly, automating bill follow-ups, and collecting retainers. Even simple improvements can result in law firms billing 18% more of their work to clients, Clio said.
  • Use electronic billing systems. Firms that use electronic billing to draft and send bills have a total lockup that is smaller by six days’ worth of revenue than those that don’t, according to the Legal Trends Report. Why? Mailing bills adds time when it comes to collecting payment. Law firms should instead consider emailing bills to clients instantly from billing software or through a client portal or app.
  • Encourage clients to pay online. Firms using online payment methods get paid twice as fast as those that don’t, according to the Legal Trends Report. Firms can make it easy for clients to pay online by including electronic payment links or QR codes in their bills, as well as providing options to store payment methods and automate payment plans.
  • Adopt internal productivity tools. Operational management systems can help law firms collaborate on projects, manage internal bandwidth, and track priorities, taking some of the administrative and business development burden off lawyers. Timekeeping apps, project management tools, internal messaging services, and customer relationship management platforms are a good place to start. (The Commission on Professionalism’s Chief Counsel Mark Palmer has some recommendations.)

Finally, most have heard of AI’s potential to enhance productivity and transform the way lawyers work.

While traditional AI tools—like e-discovery, contract review, legal research, or client billing applications—have been used by lawyers for some time, we’re still in the infancy of generative AI applications like ChatGPT.

Some lawyers are already using generative AI to handle tasks like summarizing documents or drafting litigation content, letters, or marketing material.

However, most legal professionals are skeptical of its reliability but interested in learning more, according to the Legal Trends Report. And 40% said they see its potential for increasing law firm efficiency.

As more generative AI solutions tailored to legal work become available, Clio says lawyers will have “substantial opportunities to significantly enhance their productivity, increasing both the speed and quality of their legal work products.”

As with many novel applications, there are ethical and practical issues to consider with AI, particularly regarding confidentiality (Rule 1.6) and supervision (Rules 5.15.3) demands on lawyers.

In the meantime, it’s important for lawyers to stay up to date on opportunities and risks of new technology, including AI, to attain competence and identify ways to streamline their work.

Read the full Clio Legal Trends Report here: https://www.clio.com/wp-content/uploads/2023/08/2023-LegalTrends-Report.pdf

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