Law Firm Law Firm Billing and Finance 2 — Questions and Answers
Question 1: What is the standard billing increment most US law firms use for recording time?
- 0.1 hours (6-minute increments) (Correct answer)
- 0.25 hours (15-minute increments)
- 0.5 hours (30-minute increments)
- 1.0 hour (60-minute increments)
Correct answer: 0.1 hours (6-minute increments)
Most US law firms record time in 0.1-hour (6-minute) increments, which is the standard minimum billable unit used in legal billing software.
Question 2: Which billing metric measures the total hours recorded by an attorney in a year?
- Billable hours (Correct answer)
- Realization rate
- Leverage ratio
- Utilization rate
Correct answer: Billable hours
Billable hours represent the total hours an attorney records as billable to clients in a given period — it is the primary productivity metric for most law firms.
Question 3: What is 'block billing' and why is it problematic?
- Lumping multiple tasks into a single time entry, making it hard to assess reasonableness (Correct answer)
- Billing a client a flat block rate for all services
- Scheduling billing only at the end of each month
- Using automated software to generate invoices in bulk
Correct answer: Lumping multiple tasks into a single time entry, making it hard to assess reasonableness
Block billing combines multiple unrelated tasks into a single time entry, which courts and clients find objectionable because it prevents evaluation of whether individual tasks were reasonably timed.
Question 4: What does 'accounts receivable aging' show in a law firm's financial reports?
- How long outstanding invoices have been unpaid, categorized by time bracket (Correct answer)
- The total revenue earned this fiscal year
- The number of new clients onboarded each month
- The interest earned on IOLTA accounts
Correct answer: How long outstanding invoices have been unpaid, categorized by time bracket
Accounts receivable aging reports group outstanding invoices by how long they've been unpaid (0-30, 31-60, 61-90, 90+ days), helping firms identify collection problems early.
Question 5: What is a 'contingency fee agreement' in US law?
- An arrangement where the attorney is paid a percentage of the recovery only if the case is won (Correct answer)
- A fixed monthly fee for ongoing legal services
- A fee billed per document reviewed
- An arrangement where fees are contingent on court approval
Correct answer: An arrangement where the attorney is paid a percentage of the recovery only if the case is won
In a contingency fee agreement, the attorney receives no fee if the case is lost, but receives an agreed-upon percentage (typically 33%) of any settlement or judgment if successful.
Question 6: What is a 'law firm budget' used for in financial planning?
- Projecting revenues, expenses, and profitability to guide operational decisions (Correct answer)
- Determining each client's billing rate
- Setting the minimum retainer for new clients
- Calculating attorney bonuses at year end only
Correct answer: Projecting revenues, expenses, and profitability to guide operational decisions
A law firm budget projects anticipated revenues and expenses for the coming period, enabling firm management to make informed decisions about hiring, spending, and growth.
Law Firm Law Firm Billing and Finance 2
What is the standard billing increment most US law firms use for recording time?