Clio Report Indicates Growing Role of AI
Tom Borman, LawFuel lawtech contributor
Mid-sized law firms using online payments are getting paid more than twice as fast as those not using such systems, according to the 2024 Legal Trends for Mid-Sized Law Firms report that Clio published earlier this year. But what does the report show about how law firms can maximize profits and payment rates using AI and other tech tools?
The Clio law firm report is focused on mid-sized law firms and shows that they are doing better at both capturing their billable work and collecting the money.
However many law firms, both mid-sized and smaller law firms can frequently maximize their revenues and profits by using law technology tools and processes that enhance their ability to earn more and make the best returns on their professional and capital investment.
As I have written previously, AI and legal technology tools really are the ‘great equalizer’ for smaller law firms.
We look at those key factors below, but first consider the Clio report findings in their overall effect:
Law Firm Performance Trends
- Billable Hours and Revenue: Mid-sized firms are capturing more billable hours and collecting more money than ever before the report showed, despite taking on fewer new files compared to 2016. This indicates effective utilization of existing legal work.
- Realization and Collection Rates: The average realization rate is 83 percent, and the collection rate is 84 percent. However, mid-sized firms still miss out on 17percent of billable hours and 16percent of billed amounts, highlighting opportunities for improvement.
Lockup Performance
- Realization Lockup: Mid-sized firms are more proactive in getting bills out the door compared to smaller firms.
- Collection Lockup: Smaller firms are more successful in collecting outstanding payments than mid-sized firms. Features like Clio Payments and bulk billing help reduce lockup times.
Payment Collection
- Online Payments: Mid-sized firms using online payment systems get paid more than twice as fast as those not using such systems. This is crucial given their higher work outputs and overhead costs.
Attitudes Towards AI
- Caution with AI: Both mid-sized and smaller firms are cautious about AI, with only 19 percent of legal professionals currently using it. However, potential clients are more optimistic about AI’s benefits, which could put mid-sized firms at a disadvantage if they do not adapt.
Clio Report Conclusion
- Growth Opportunities: Mid-sized firms have significant opportunities for growth and efficiency through new systems and technologies. Overcoming organizational challenges will be key to harnessing these opportunities and remaining competitive.
How To Maximize Payment Collection
The results of the Clio report underscore the importance of leveraging technology and improving payment processes to enhance the performance and efficiency of mid-sized law firms. But what are some of the key things law firms should be doing to ensure they are collecting their fees and faster?
Here are six:
- Implement online payment systems
Mid-sized firms using online payment systems get paid more than twice as fast as those not using such systems. Offering convenient online payment options like credit cards, digital wallets, and Pay-by-Bank transfers can significantly accelerate collections and is something most firms – even the smallest – can put in place to speed up payment systems. - Automate billing and reminders
Firms using automated bill reminders collected 15-20 percent more monthly revenue than those not using them. Automating the billing process and payment reminders reduces administrative costs and improves cash flow for the firm. So don’t put off those friendly reminders. - Use legal practice management software
Leveraging features like outstanding balance summaries, email billing, and client funds requests can improve collection rates. Software systems are about that can streamline payment processes. - Establish clear billing policies and procedures
Create a standardized policy outlining billing procedures, invoice review steps, and dispute resolution processes. This is not only a good professional practice but it also ensures consistency and sets clear expectations for clients. - Offer flexible payment options
Flexible or alternative fee plans are becoming much more widespread. By providing Alternative fee arrangements like flat fees and payment plans to make it easier for clients to manage costs. This can improve client satisfaction and increase likelihood of timely payments. Explore options like subscription-based services or value-based pricing for certain practice areas to create more predictable cash flow. - Focus on invoice accuracy and transparency
Provide detailed, clear invoices to clients to avoid disputes and delays in payment. Transparent billing practices build trust and reduce payment friction for you and the client. - Implement a systematic collections process
Develop a structured approach to following up on unpaid invoices. Having a clear collections strategy helps minimize accounts receivable. - Monitor key metrics
Track important metrics like realization rate, collection rate, and lockup to identify areas for improvement. Once again, this is an area where legal tech tools can be used to great effect to monitor your processes by using dashboards to monitor these KPIs in real-time. - Communicate effectively
Regularly communicate with clients about their cases and billing to maintain strong relationships. Good communication can prevent misunderstandings that lead to payment delays and are good practice anyway to build client relationships and ongoing business.
By implementing these strategies, mid-sized law firms can significantly improve their payment collection rates, maintain healthier cash flow, and compete more effectively in the legal market.
The key is to leverage technology, streamline processes, and prioritize client experience in billing and payments.
