Legal Invoices Unpacked: A Law Firm’s Complete Guide

Legal Invoices Explained

A legal invoice is a specific type of document that contains detailed information about services provided within the legal industry. Also known as a billable invoice, this document consists of a range of details, such as descriptive elements and monetary values. Essentially, legal invoices act as essential tools within law practice, whether you use them to keep your clients informed about charges or prompt payment.
The key components of a legal invoice can vary depending on the services provided by a specific law firm. However, the most basic elements include contact information for the firm, the date and a unique invoice number. Law firms should also attach their terms and conditions to each invoice, which enables clients to easily understand the requirements and expectations. The specific billing method used to charge clients can also be included if deemed necessary. In most cases , detailed billing instructions are attached to invoices only when a law firm’s payment structure requires certain actions from clients.
In addition to the basic elements, legal invoices usually incorporate more sophisticated features compared to traditional invoices. For instance, many invoices that are issued by law firms in Canada or the United States contain more than just the contact information of the creditor and debtor. In some cases, invoices may include a number of line items, such as details about the services provided, costs for every service or line item, the identified client and any applicable taxes. Additionally, some invoices issued by law firms may have the total cost of every service provided listed at the top of the invoice or bill.

Components of a Legal Invoice

Several key components must be present in any legal bill to ensure compliance with best practices, state bar requirements and client expectations.
Client Information
Basic client information—client’s name and street or email addresses—appears somewhere on all legal bills, usually in the letterhead. Some billing software includes a date of service to the right of this information, which is not essential but can be convenient for clients.
Detailed Billing Entries
A narrative is needed to explain the charges on an invoice. Most states require this kind of detail to be listed separately. There should be a brief description denoting the date of the lawyer’s services, their nature and amounts of fees.
Payment Terms
The last section of any legal bill is the payment terms. These terms clearly explain how your client can pay their invoice, encourage them to do so and reward or incentivize them when they do. Some payment terms are standard, such as including the due date, while others vary.

Pitfalls in Legal Invoicing

Even the most experienced law firms make errors in their invoices. Missed or incorrect rates, improperly calculated totals, or simply verbose descriptions can set a disorganized vibe for billing that clients may not be comfortable with. For example, billed hours must match in all places. If your office G/L includes 8.5 hours while the client version includes 8.25, this looks unprofessional and could cause a problem. You never want to give clients the feeling that you are trying to take advantage of them with exaggerated hours, or worse, have them think that you don’t have a handle on their case. Even minor errors can feel like a major integrity breach. Avoid these issues, and you will bill faster, with fewer errors.
Another common mistake is lack of specificity in billing. As far as the firm is concerned, this can make sense. You may know exactly what "correspondence with client" means, but there are so many strikingly different scenarios that could fall under any title, that it’s really not the best representation of services. Make sure you are using a detailed enough description so your clients are not left puzzled by the wording you use in your invoice.
It’s also important to remember that hiring outside help to assist in your work doesn’t mean you can bill those hours directly to the client. This sort of labeling is misleading, and can leave your clients feeling unsatisfied, or even angry. Make sure payments to contract and temp help are not billable charges unless they are explicitly covered in advance.
Finally, don’t leave delayed billing for your following month’s statements. While some lawyers do provide one large e-bill per month, that is generally reserved for retainer agreements or long-term client/firm relationships. At the end of the day, sending one large bill at the end of the month or quarter can feel like a money grab, and you may garner some degree of mistrust from your clients. Instead, bill at the end of every week or every two weeks.

Legal Invoice Best Practices

With an effective process for creating and sending legal invoices, you can avoid delays and errors. But there are a number of factors to consider when developing a system for your law firms invoicing process. Having the right invoice management software will help you utilize some best practices for legal invoice management.
First and foremost, you should use a consistent billing template. By doing so, you’re promoting a professional image for your law firm. Moreover, your invoices enable the recipient to easily identify your firm, thus avoiding confusion or disputes. Using the same template for every legal invoice you send also helps you and your clients to keep track of their accounts. A detailed invoice with clear line items makes for a quick and easy method of checking information across multiple invoices. So, even if your client has a separate accounts payable department that handles payments and other billing inquiries, they can quickly see what was billed by whom and when whenever they have questions.
Secondly, your law firm should use efficient software tools. Legal invoice management software should provide solutions for all aspects of your invoicing system. In other words, the software should allow you to create detailed customized invoices that can be generated for a range of time periods, whether by hour, the day, the month, etc. And, beyond this, the software should enable you to conveniently download and send your invoices via email, for easy distribution to clients’. In addition, you should be able to send invoices directly from the invoice management software into a specific accounting system (e.g., Quickbooks). This is an option that will make your job easier, while simultaneously making sure that no invoices are ever missed and/or fall through the cracks.
Most importantly, you should take care to ensure that your law firm maintains strong cash flow. That means, as a best practice, your firm should deploy it’s invoicing strategies in a manner that ensures your invoices get to clients as soon as possible. Never delay in sending them out. If your firm is not sending out invoices as soon as possible, it could mean the difference between getting paid and not. It’s a simple fact that it’s much easier for your law firm to collect on invoices if they do not sit around for extended periods of time before being sent out.

The Need for Clear Legal Billing

Transparency is crucial when it comes to legal invoicing. Use too many jargon terms and a client may feel like you’re going too fast or holding back information. Be too particular and they won’t understand your billing language at all. So what’s a law firm to do? The only thing they can do, which is to be as transparent and clear as possible . If you didn’t already provide a scope of work beforehand, then it’s time to give clients a detailed account of why their statement is what it is. Include specifics about the case, terms used, and why particular amounts were spent on certain things. When transparency is low, then disputes become quite high. It’s a lot easier to trust your clients – than it is getting them to trust you.

Resolving Legal Invoicing Disputes

Even with careful consideration of the appropriate fee arrangements and provided that invoices are detailed and comprehensive, it’s unfortunately common in law firm invoice management to have to navigate a dispute in regard to an invoice at some point. These disputes commonly arise for one of the following reasons:
Poor Communication – If your client hasn’t been informed of something that was done or how much something has cost them, they’re likely to be upset by it and dispute the charge. This can happen when the client is not appropriately educated on the service being provided (likely due to a lack of communication on the lawyers part), or where a matter is being overseen by an external law firm and they are hit with invoices for several different services from multiple firms totaling tens of thousands of dollars.
Time Spent – Time discrepancies between what’s detailed in your invoice and what your client thought was charged or reasonably spent on the work being done is also likely to cause issues. You can avoid the issue of your clients disputing the time you’re billing by keeping detailed and comprehensive legal bills.
Return on Investment – Your client may dispute time and money spent because they didn’t see any tangible return on the investment. To combat dispute issues there has to be a clear link between the legal services provided and the work that’s been carried out in regard to their matter. Your client needs to understand the connection between the invoice and appropriate value to them.
If a dispute arises, the best course of action is to communicate clearly and calmly with your client in a timely manner. The sooner you start talking the clearer the understanding will be. Your client may just need extra information and context so the situation can be resolved smoothly.
If a fee dispute occurs, your first reaction is naturally going to be defensive. Try to hold your tongue and treat the issue as you would any other business professional relationship. Issue a carefully detailed response letter. Use only legally relevant statements and never personal opinions.

Legal Invoice Trends

As law firms and corporate legal departments grapple with the evolving landscape of legal management, the future of legal invoicing seems to be equally in flux. A number of trends are emerging that promise to change how invoices are generated, sent and processed.
Centralized Invoicing
More and more firms are adopting a centralized solution for not just time and billing but document management and tracking all the way through the payment process to improve efficiency. This improves the ability to implement innovative policies and practices in a consistent fashion and provides the ability to do performance and trend analysis more easily. Centralized systems are also easier to integrate to other solutions such as calendars, case management and project management for matter management to improve reporting capabilities. Searches for client records are more robust and current under these centralized systems.
Automation
Automation makes it possible to deploy numerous systems all at once while keeping the payroll down. Invoicing automation can improve the quality and consistency of invoices while providing greater flexibility with customizable features that allow for specific request throughout the system. Invoicing systems that automate the process not only save time but also improve the quality of the invoices submitted to clients , which can make payments faster and reduce the number of times invoices need to be revised and resubmitted.
Digital Payments
The use of digital payments has been in the works for some time but it may be gaining some new steam as it has with healthcare. The technology is now available in which claims processing after charging a credit card for a given service might actually be completed before the patient even leaves the office. Modern legal billing solutions provide this and more, providing law firms with a single place to track receivables across a range of payment methods and client types. Digital payments also provide many other advantages such as limiting the risk of fraud, improving the accuracy of reporting and enabling faster reconciliation with integrations with accounting systems used by the firm.
Artificial Intelligence
Artificial intelligence (AI) is proving to be useful for law firms in a number of ways. AI makes it possible to analyze data to provide for more competitive pricing models. This is also beneficial for helping legal teams determine what alternative fee arrangement (ARFs) will work out best when providing quotes to clients. This can help open new doors and opportunities for the firm. AI can also be used for budgeting to take advantage of the most efficient resource allocation management strategies. Data can be used for predictive modeling to provide more realistic projections about when invoices are going to be paid and what obstacles there might be to payments for accurate cash flow management.
The invoice is often the last step in legal management of a matter and as automation and new technologies come into play it is going to be essential for you to make sure the invoices being sent reflect the work done.