During 2020 law firms had to provide an unprecedented level of support for clients, many of whom were facing huge operational challenges to survive. This created a significant volume of high-rate work done by partners, something that both generated revenue and created valuable top-level relationships. It also, however, led to partners undertaking far more unbillable, low value and admin work – with billable hours reducing by 6% (NA) and 15% (UK).
Global financial challenges also encouraged clients to become far more focused on costs, with firms (84% NA, 80% UK) confirming they have experienced rising client demands for financial transparency. Clients also want more Alternative Fee Arrangements (AFA), with respondents reporting an average increase of 28% (NA), 26% (UK) in client demand for AFAs since the pandemic began.
Payment Problems
At the same time, payment problems have become widespread – not only have 94% (NA), 94% (UK) firms experienced a delay in settling bills, but write-offs have also escalated. 60% (NA) and 48% (UK) say that billing write-offs have increased by up to 60% - and a further 13% (NA), 15% (UK) say that billing write-offs have increased by more than 60%.
Well over a quarter (28% NA and 27% UK) of firms also confirm that billing write-offs/ write-downs is an area of profit leakage that is impacting overall profitability.
The lack of pricing transparency to support timely client conversations has long been a cause for concern, with unexpected and uncommunicated project overruns creating significant problems with client relationships, and often leading to write-offs. With the financial pressures faced by many clients over the past 18 months, it is no surprise that write-offs have risen but this trend has accelerated the need for firms to gain far more control over costs.
Improving pricing management and cost tracking not only provides management and pricing teams with far better, up-to-date insight into performance but also provides a platform for improving client communication and ensures any potential problems are highlighted and addressed early in the billing cycle.
This was an excerpt from The Legal Pricing and Budgeting Report. Access the full report to dive deeper into the findings from over 800 legal professionals:
