Managing write-offs in 2024: a multimillion opportunity

Managing time write-offs in law firms

Lawyers frequently default to writing off time based on assumptions about client expectations, even without clear guidelines requiring such action. While firms have implemented policies to control large write-offs through management oversight, these mechanisms typically miss the cumulative impact of smaller, routine write-offs across matter portfolios. Moreover, traditional reporting tools often fail to give lawyers the real-time visibility needed to manage write-offs proactively. This article explores the importance of write-off management and examines how modern analytical approaches can transform this critical aspect of law firm operations.

Why write-off management is important

Effective write-off management delivers benefits across multiple dimensions of a law firm's operations. For the firm itself, reduced write-offs directly impact the bottom line, improving realisation rates and profitability. Even a modest reduction in write-offs can translate into substantial revenue gains, given the high hourly rates typical in legal services.

For teams and practice groups, better write-off management contributes to improved morale. Nothing deflates a fee earner's motivation quite like seeing their hard work written off, particularly when they've delivered value to the client. When write-offs are managed proactively rather than reactively, teams can work with greater confidence that their efforts will be recognised and rewarded.

Individual lawyers also benefit from strong write-off management practices. A reputation for managing matters profitably while maintaining high client satisfaction is increasingly valuable in today's competitive legal market. Partners and associates who consistently demonstrate this capability often find themselves in stronger positions for advancement and recognition.

Size of the prize

Research by the Thomson Reuters Institute in 2020 provided fascinating insights into write-off behaviours among law firm partners. Perhaps most tellingly, 43% of partners reported that they "always" or "usually" make proactive adjustments to client bills because the time spent exceeded their own expectations. This significantly outweighed the 14% of partners indicated they "always" or "usually" adjust bills due to concerns about potential client challenges. The study further revealed that "amount exceeds estimate given to client" ranked only fifth among reasons for write-downs, cited by 31% of respondents as occurring "sometimes".

These findings point to a significant opportunity. The top five reasons cited for write-downs are, to varying degrees, within partner control and account for approximately 64% of causes for time write-offs. To put this into perspective: if a firm has billing realisation of 80%, write-offs amount to 20 percentage points. With 64% of these write-offs being potentially influenced by partner actions, there is scope to address roughly 13 percentage points of write-downs. While it would be unrealistic to expect partner intervention to eliminate these write-offs entirely, even modest improvements could yield substantial benefits. If better matter management could improve these controllable write-offs by just 10%, a firm would reduce overall write-offs by 1.3 percentage points—potentially translating into multi-million pound savings for larger firms.

Ways for managing write-offs

The individual lawyer's role in managing write-offs cannot be overstated. Success often begins with proactive workload and budget management. This includes:

• Setting clear expectations with clients about scope and likely costs
• Regular monitoring of time against budget throughout the matter
• Early identification and communication of potential overruns
• Careful matter staffing to ensure work is done at appropriate levels

One common challenge is the tendency for lawyers to pre-emptively write off time based on assumptions about client expectations. Many lawyers routinely reduce their time entries because they believe certain activities won't be accepted, even in the absence of specific client guidelines or previous pushback. This self-censoring behaviour can become self-fulfilling and ultimately shapes client expectations in unhelpful ways.

Addressing the hard constraints

While proactive management can address many write-off challenges, some factors are less amenable to change. Outside counsel guidelines (OCGs) and explicit fee agreements create hard constraints that must be factored into matter planning from the outset. These might include:

• Restrictions on certain activities (e.g., internal conferences)
• Limits on time recording increments
• Requirements for specific staffing arrangements
• Prohibitions on certain types of charges

The key is to incorporate these constraints into matter planning rather than treating them as after-the-fact write-off factors. This might mean adjusting staffing models, communication practices, or work allocation to align with client requirements.

Managing write-offs through policy

Most large law firms have implemented formal policies to govern write-off decisions, typically requiring management approval when write-offs exceed specified thresholds. While these governance mechanisms can effectively control large, exceptional write-offs, they often fall short in addressing a more pervasive challenge: the cumulative impact of smaller, routine write-offs across a firm's matter portfolio.

This limitation is particularly significant given that even modest improvements in realisation rates can have substantial financial implications. A single percentage point improvement in write-off rates, when measured across an entire firm's billables, can represent seven-figure revenue opportunities for larger practices. This highlights the importance of complementing policy controls with more granular approaches to write-off management.

Data analytics and visibility

Traditional time recording and billing systems often fail to provide lawyers with the visibility they need to manage write-offs effectively. Monthly or quarterly write-off reports typically arrive too late to influence behaviour or address emerging issues.

Modern analytics tools are transforming this landscape by offering:

• Real-time visibility into time recording patterns
• Predictive analytics for likely write-off risks
• Early warning indicators for budget overruns
  

These capabilities enable lawyers to identify potential write-off issues before they become significant problems. For example, predictive models can now forecast likely write-off rates based on matter characteristics and specific matter circumstances, as gleaned in time sheet records, helping lawyers adjust their approach before issues arise.

Conclusion

Effective write-off management represents a significant opportunity for law firms to improve both profitability and fee earner satisfaction. Success requires a combination of individual lawyer engagement, clear processes, and modern analytical tools. By treating write-off management as a proactive rather than reactive process, firms can achieve better outcomes while maintaining strong client relationships.

The key is to create a culture where write-off management is seen as part of excellent client service rather than a purely financial exercise. When supported by appropriate tools and processes, lawyers can focus on delivering value while maintaining healthy realisation rates.

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