Legal Billing in 2021: Where are we headed?

Blog post - 21 January 2021

The global pandemic of 2020 took the world by surprise. The seismic changes that flooded the legal industry in its wake may just result in permanent change. Many of those changes will directly and indirectly impact legal billing practices in 2021. Here’s how:

Legal Billing and Work From Home Arrangements

93.5% of associates surveyed across Asia, the US, and the UK said that their billable hour targets remained unchanged during the pandemic. While the impact of the pandemic on firm revenue varies (depending on the industries served, practice areas, and firm size), the impact of the pandemic on billing hygiene seems to be fairly universal. Essentially, the effect of any billing hygiene issues that were present prior to the pandemic have been amplified. Research by McKinsey indicates that client, matter, and one-time discounts all tended to increase during past downturns. So, law firms that do not prioritise a strong culture of billing hygiene can expect to see more write offs and discounts granted to clients into the future.

Increased importance of data insights on workflows

“Anecdotally, there’s definitely been a major spike [during the pandemic] in everything from anxiety, overwhelm, fear, overall unwellness,” consultant Jarrett Green said. “This is the most mentally and emotionally challenged the legal industry has been that we’ve seen” reports Lizzy McLellan for Law.Com

Legal Customer Buyer Power Set to Strengthen in 2021

Competition in the legal services space will continue to rise in 2021. Meanwhile, the number of boutique law firms and alternative legal service providers is steadily rising.

The power that legal customers have found themselves holding over the past years will remain with them. Clients remain in a position to dictate key billing terms, mandate seniority on certain work, and (importantly) to demand value from their lawyers. You can read more about the importance of perceived value in legal services in our eBook “How Savvy Law Firms are Driving Profits Through Customer Satisfaction”.

The impact of buyer power on billing
In certain circumstances, this buyer power places downwards pressure on legal fees. But, not always. The real impact we’re likely to see is that clients will demand transparent billing and greater consistency in fees. Law firms will need to cater to this to attract and retain their client base.

Lawyer Diversity Driving Changes to Billing Structure

While the debate rages on as to whether the billable hour will ever die, law firms continue to face mounting pressure to adopt alternative billing arrangements. Lawyer diversity will act as one of those drivers.

The number of female graduates of law schools has been steadily rising around the globe. Female law graduates outnumbered male law graduates in every EU member state in 2017, according to the European Parliament. Yet, women remain underrepresented among practicing lawyers in the EU and significantly underrepresented at partnership level.

Using billable hours as the driving force for internal promotion isn’t a great fit for lawyers who have family or other personal commitments outside of work. It doesn’t reward creativity, efficiency, or even positive outcomes. Continuing increases in diversity in the legal industry and in firms (particularly at partnership level) will result in a shift in thinking about the key characteristics of a good lawyer, with partnership prospects. Which is why both lawyers and clients are increasingly demanding alternative billing structures.

Increased Intervention by Legal Technologies

76% of lawyers surveyed in a recent report say that legal technologies will be the top trend that impacts their law firm over the next three years.

Emerging legal technology trends include automation, virtual law practice development, artificial intelligence, and increased access to justice.

This trend will impact legal billing in two ways:
1. Increasing automation places (additional) pressure on law firms to embed alternative billing structures.

Automated processes shift the value derived from legal services away from the input of time and towards outcome. This provides law firms with an incentive to provide value-based billing via alternative billing structures over the traditional billable hour model.

2. Legal technologies will improve the quality of legal billing.
Automated legal billing guarantees consistency and accuracy, while also generating useful business insights. In fact, time tracking applications provide better billing across every category valued by law firms: quality, quantity, and efficiency.

What Do You Need To Do In 2021?

Much like the legal industry itself, legal billing is changing. Now is the time to start making changes to your firm’s billing culture and processes to be sure you’re ready for the 2021 client.