Law firms across the Am Law 200—and even in the Am Law 50—are losing substantial revenue due to weaknesses in their billing and collections practices. According to a recent Law.com analysis, firms forfeit between 15% and 25% of potential revenue because of inconsistent processes, partner-driven decision-making, and long delays in collections.
Revenue leakage happens at multiple points in the cycle: inaccurate timekeeping, unnecessary discounts, client disputes over unclear invoices, and slow payment timelines. These small inefficiencies compound over time, creating what David Schaefer calls a hidden but dangerous risk:
“It’s like walking into a room in your house and you see that little brown spot on the ceiling… maybe there’s a leak in the roof. I should have that checked out one day. And maybe you don’t notice it, but it’s getting a little bit bigger. It’s hard to really tell. And then all of a sudden, a piece of your ceiling comes down.”
For many firms, the challenge becomes especially acute at year-end. To accelerate payouts, partners often push to close out accounts quickly—even if that means accepting less than what is owed. As Schaefer noted, firms routinely “accept less than the total outstanding balance” simply to move receivables off the books. While expedient, this short-term approach undermines long-term profitability.
Strategic focus is also key. Firms often evaluate performance through realization rates, but Schaefer emphasizes that true profitability requires a broader lens:
“The decision on which practices to pull back on or dive deeper into is based on profitability and not just realization.”
In practice, this means accounting for billing hygiene, discounts, client payment timelines, and the cost of collections—not just projected revenue.
The article underscores a growing industry recognition: outdated, informal collections practices are no longer sustainable. Leading firms are beginning to explore more structured approaches—ranging from professionalized billing departments to tighter partner accountability. Those that address these “hidden leaks” stand to reclaim significant lost revenue and strengthen their long-term financial resilience.
