In my last post, I talked about the semi-twisted world of hourly billing in professional services firms.
I used a law firm in my example to set out what a client has to go through every month to review and approve an invoice based on time incurred. It's a brain draining process for the client that, among other things, slows down the payment of those invoices to the firm.
At the heart of the problem is the fact that:
- The client does not know their cost before the engagement begins
- The focus is on time/effort incurred
- Time incurred isn't known until a month or more after the time is incurred
- To determine if an invoice is accurate the client has to consider whether the time incurred seems reasonable, whether the worked performed seems necessary, whether the people involved seems reasonable given the type of work performed, and that their individual rates are in line with what they expected
- … and a lot more
A Baby Step in the Right Direction
Now for a possible solution that could make the client feel better and speed up the payment of the invoice at the same time.
I'm not going to make the pitch for flat pricing, value pricing, alternative billing, etc. All of which have merit in many circumstances. But all of which would be met with such intense resistance that the default would be to do nothing.
Since my mission here is to help create a possible solution, I'm going to assume you have no desire to change you're billing by the hour model. But that you are interested in trying to get paid faster and make clients feel better in the process.
Here's What Other Companies Are Doing
Let's take a quick look outside a law firm to see how other companies help their customers feel like they are involved in the products and services they buy from them.
Credit card companies – I set an alert for my credit card so that anytime a charge is made, but the card is not present, I get an email to alert me. It tells me what it was used for, the vendor, and how much the charge was. That way I can call them immediately if the charge was fraudulent. I don't have to wait an entire month to find out something was charged on my card that I did not authorize.
Banks – I have my bank accounts set up so I am alerted to large activity and when the balance goes above or below a certain level. I don't have to wait until the end of the month to know what's going on. And I don't even have to go to my account online to see it.
Amazon – I buy lots and lots of books at Amazon. I love business books. Amazon sends me a txt message as the package progresses from the warehouse to the various delivery sources all the way until it is delivered at my door or in my mailbox. They let me know how the "work" is progressing toward getting me what I ordered.
Domino's Pizza – Domino's has a tracker that will let you know where your pizza is in the various stages from being prepared to being delivered. People actually get a kick out of knowing what's going on along the way.
Reliant Energy - My electricity supplier is Reliant Energy. This is an interesting example because I don't know how much my electricity will cost before the month begins. They basically use the hourly billing model. Rate x usage = my cost.
Here's how they keep me updated on energy usage during the month so the bill is not a surprise when I get it.
Reliant offers a weekly email service that provides information about my electricity usage. It estimates what my usage for the month might be, compares usage to last week, and even compares my usage to my neighbors. Here's how they explain the service and its benefits.
I love the bullet that says "Empowers you to make decisions based on summary information – before you receive your next bill".
And I like the next bullet that says "Eliminates surprises on your bill by informing you what you're spending from week to week and providing estimates of your next bill".
I bet law firm clients would value that same kind of information.
Here is a portion of a recent weekly email I received so you can see some of the information it provides.
I can also go online to my account and see my electricity usage for any timeframe. Is it overkill? Maybe.
But they are making a statement by providing a transparent view into my usage pretty much as it happens. I appreciate the fact that the service is available so I can look at it if I choose to.
Could a Law Firm Do Something Similar?
What if a law firm had a similar approach to making time incurred and work performed available so a client could better understand and monitor it each day or each week?
Would the client appreciate the visibility? Could the client ask questions during the month rather than waiting until the month has ended and they receive the invoice?
Would it be easier for the client to participate in the process and feel like they are involved?
Here are a few of the benefits in my view:
- Clients might like it and feel less surprised when they get the invoice (which could translate into faster payment)
- Daily time tracking within the firm would become the norm (it would be self-policing). Right now most firms have a week or more lag time between when time is incurred and when it is actually recorded in the time tracking system.
- Better visibility to upcoming billings within the firm (more accurate billing and cash flow projections)
Sure, there are probably lots of issues to overcome in providing that kind of transparency for clients. But it's hard for me to imagine that it would hurt client relations or slow down payment. It sounds to me like a low risk, lots of potential upside, kind of process to consider.
One baby step for a firm to consider is pick a couple clients that are slow payers and that complain about their bills a lot. Then manually provide them twice a week email updates on time and work incurred. You will probably know in short order if they like it or hate it… and whether it improves client relations and trust and speeds up their payment.
Some people will point out that many time and billing systems in law firms (and most professional services firms) are old and could not provide web access or automated emails. Good point. Maybe that's part of the problem.
But the larger question is whether professional services firms could get comfortable providing daily visibility and transparency into their time and work incurred. I'm sure the debates would be lively!
I'd love to read your list of issues or obstacles in the way. Given that my last post generated some hate mail (although fairly polite hate mail), I know lots of people will think my idea is dumb. That's OK. Share your thoughts with me anyway. It's always helpful to hear both sides!
I'd also love to hear from you if you think the idea seems like a reasonable and effective solution (or at least a baby step in the right direction).
Email me your comments.