Understanding the different ways of billing is important for both businesses and consumers. A failure to do so will often result in unnecessary inefficiencies and costs. Given that small businesses and startups have limited capital and cash flows, it is important for owners to be aware of their finances and legal costs at all times. One of the ways small businesses are billed is via hourly billing.
If you are seeking to find out more about how you could incorporate hourly billing into your business, contact a business lawyer.
Below is a summary of hourly billing and how it could impact your business.
What is Hourly Billing?
Hourly billing refers to the method where a fee is charged for every hour worked by a firm in relation to a matter. These charges may be for the practitioners only and can include all overheads and support staff. Alternatively, rates may be established for every person who works on the matter, including clerks and paralegals. In order to prevent the common issue of ‘leakage’ rates, it is important to ensure that only the actual time spent is charged according to the work done. As such, care should be taken in the input process and training is required for new time recorders. Units of time should range from one minute to six minutes or pro rata.
Depending on the client’s relationship with the firm, hourly billing is often utilised when the extent of work required is unknown at the outset of the retainer.
A key advantage attributable to hourly billing is:
- Provided the set hourly rate reflects adequately the costs of the practice, recovery of expenses with a profit margin for all work performed is guaranteed.
However, hourly billing can suffer from:
- Possibility of disputes over the number of hours worked.
- Focus on charging rather than value for the client.
- Inefficiency and the perception that a legal service is not value for money.
In order to address these issues, hourly rates needs to be carefully managed and transparent from the client’s perspective. Additionally, emphasis may need to be spent on aspects other than ‘time’, such as results and outcomes, to broaden the client’s focus.
Choosing the right way to pick your form of billing is essential to understanding your costs and setting the right prices for your goods or services. We recommend seeking advice from an experienced business lawyer when drafting out your hourly billing contract.
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