As far as lawyer billing methods are concerned, the hourly billing method was for a very long time the de facto standard among legal firms. In terms of this system, clients are billed at a fixed rate per hour and the total bill depends on the time the attorney spent on the case. The way services are rendered in the legal profession is, however, slowly changing and with that new lawyer billing methods are becoming increasingly common.
Over the last couple of years, flat fee billing has been gaining in popularity steadily and right now a large percentage of lawyers offer this as an option. This billing method involves the lawyer and the client discussing the work that needs to be done upfront and the lawyer then quoting a fixed amount. The client typically makes several payments during the course of the case, with the last one being made when the work has been completed. Below we examine the pros and cons of both billing methods.
The Pros And Cons Of The Two Most Popular Lawyer Billing Methods
Hourly Billing – The Pros
As we mentioned earlier, hourly billing has been one of the most popular lawyer billing methods for a long time. The biggest benefit for the lawyer is that there is no risk that he or she will be doing work for which they are not paid. The hourly rate can also be set at such a level that it takes into account the expertise and experience of the specific lawyer, while not disregarding the ability of the client to pay.
Since most clients are used to this billing system they normally don’t feel uncomfortable with it. It also makes it easy for them to compare the rates of different legal firms.
Hourly Billing – The Cons
The biggest drawback of this lawyer billing method from the perspective of the client is that he or she might eventually be faced with a much bigger bill than they expected. If this happens, the possibility of disputes is much more likely – in which case the lawyer could face a very real risk of not getting paid.
With hourly billing, there is also no real incentive for the lawyer to find ways to reduce costs or be more efficient.
Flat Fee Billing – The Pros
The predictability of this lawyer billing method ensures that. when the final bill arrives, it won’t be a huge shock to the client. Fixed fee billing also makes it possible for clients to make more informed decisions because they can easily compare the benefits of, for example, winning a case with the cost of litigation.
It can also be argued that with this billing method the focus shifts away from billable hours to the value being generated, with legal firms having a strong incentive to add ass much value to the task at hand as possible.
Flat Fee Billing – The Cons
Probably the biggest drawback of flat fee billing is that the total cost is based on the average historical cost of a particular task. This means that the lawyer could underestimate the amount of time that will be involved in a particular case, or he or she could overestimate it.
In the first scenario, the legal firm might find itself working at a loss. This is particularly likely if there is an opposing party and the case gets much more involved than initially expected. On the other hand, should the lawyer initially overestimate the amount of work involved, the client will end up paying more than he or she should have.
Conclusion – Which Of The Two Lawyer Billing Methods Is Best?
We don’t believe either of the two lawyer billing methods discussed above is a ‘one size fits all’ solution. For the legal firm, flat fee billing might be the best option where the amount of work can be predicted fairly accurately. Examples include drawing up a contract, registering a new company, or filing a trademark application. More ‘open-ended’ work such as contested divorces and court cases are, at least from the lawyer’s perspective, more suitable for hourly billing.
There is also a third possibility: combine these two lawyer billing methods into one with a system known as ‘flat fee plus’. This involves the client paying a flat fee based on certain assumptions regarding the scope of the work involved and an hourly fee for any work that exceeds this initial estimate.