Tracking Billing Cycle Metrics

The law firm business model is based on the measurement of 5 key profit drivers:  Rate, Realization, Utilization, Leverage, and Margin.  I would add another metric:  Cash flow.  You can really see a return on your investment in time and effort if you have a lot of time in WIP (work in process) and AR (accounts receivable).

The critical metrics that affect cash flow are the average days to bill, average days to collect (and by extension the sum of both to create the total billing cycle) and the average days in AR. Using a rolling 12 month period will give you an annual baseline, but you can also track it monthly. 

In the graph below, The variables are the total fees unbilled, total fees billed, and total fees collected over a 12 month period.  Knowing these numbers, you can calculate the total receivables outstanding during this time span, the average monthly and daily fees unbilled, billed and paid and your average days to bill, collect and days outstanding.

These metrics are critical for measuring your efficiency both at billing your work and collecting your fees.  If these numbers are high, then a review of your processes is due. Click on the graphic above to download and test with your own numbers.