Mid-sized firms are working harder, billing more — but collecting less
Clio‘s 2024 Legal Trends for Mid-Sized Law Firms delves into critical aspects such as performance trends, payment collection strategies, and perceptions of artificial intelligence (AI) within mid-sized firms
In the ever-changing legal industry, staying ahead of the curve is crucial for success. For years, Clio’s annual Legal Trends Report has been a trusted source of valuable insights, shedding light on the shifting dynamics within the legal landscape. This report has become an indispensable resource for legal professionals worldwide, offering a deep dive into law firm performance metrics and industry trends.
Let’s explore the key takeaways from this year’s report, offering a fresh perspective on the evolving landscape of mid-sized law firms. Read the full 2024 Legal Trends for Mid-Sized Law Firms report.
Defining mid-sized firms
First and foremost, it is important to establish what we mean by mid-sized law firms. In the context of this report, mid-sized firms are defined as those with 20 or more staff members. This categorisation helps differentiate them from smaller firms, which typically have fewer than 20 employees.
Data sources
The insights presented in this report are derived from a comprehensive analysis drawing from various sources:
Aggregated and anonymous data from Clio: By leveraging data from thousands of legal professionals segmented by firm size, we can provide unparalleled insights into technology usage and its impact on performance.
Surveys among legal professionals: We conducted surveys between 31 May and 20 July 2023, capturing responses from 1,446 legal professionals. This allows us to gain a nuanced understanding of the challenges and opportunities across different firm sizes.
General population survey: In addition to surveys among legal professionals, we surveyed 1,012 individuals between 13 and 22 June 2023. This provides valuable insights into public perceptions and behaviours regarding legal services.
Mid-size firm performance insights
One of the most significant findings of this report is the disparity in payment collection efficiency between mid-sized and smaller firms. Mid-sized firms demonstrate more robust performance in realising billable hours but need help collecting payments compared to smaller firms.
The concept of “lockup” encapsulates this challenge, representing the duration between billable work completion and payment receipt. While mid-sized firms are adept at issuing invoices promptly, they face hurdles in collecting outstanding payments, leading to revenue stagnation.
Lockup comprises three main components, measured in days:
- Realisation lockup: represents the unbilled revenue and is called a “work-in-progress lockup.”
- Collection lockup: denotes the uncollected revenue, commonly known as “debtor lockup.”
- Total lockup: This encompasses the combined revenue in realisation and collection lockup.
Typically, mid-sized law firms demonstrate more promptness in issuing invoices than smaller firms (realisation lockup). Conversely, smaller firms excel in collecting outstanding payments compared to mid-sized firms (collection lockup).
We also see that using some Clio features, including Clio Payments, bulk billing, and Clio for Clients, significantly reduces lockup.
Leveraging technology for improvement
Mid-sized law firms utilising online payment methods receive payments at a rate more than double that of traditional payment methods. The average realisation and collection rates among mid-sized law firms in 2023 were 83% and 84%, respectively.
These numbers look great on their own but reveal substantial room for improvement upon closer examination. Approximately 17% of billable hours still need to be accounted for in client invoices, while 16% of billed amounts go uncollected.
For mid-sized firms, the need to expedite payment processing is particularly pronounced. Given their typically higher workload and overhead costs compared to smaller firms, inefficiencies in collections could mean significant revenue loss, jeopardising essential financial obligations like payroll and rent.
Introducing online payment options alleviates client payment friction and accelerates payment receipt for law firms. This benefit is especially notable for mid-sized firms, where the adoption of online payments results in payment speeds more than twice as fast as traditional methods.
Read more: How mid-size law firms can stay ahead in the market: Roundtable discussion.
AI adoption and client expectations
Lawyers in mid-sized and smaller firms remain cautious about AI, questioning its reliability. However, AI adoption is already prevalent, with nearly one in five (19%) legal professionals using it.
Different perceptions lie at the heart of mid-sized and smaller firms’ reservations about using AI in legal practice, some of which may be opportunities—particularly among smaller firms. Interestingly, mid-sized firms’ scepticism about AI conflicts with client expectations, putting them at a disadvantage.
Clients are notably more optimistic about AI’s benefits than lawyers in mid-sized firms. Clients are much more likely to believe that the benefits of lawyers using AI-powered software far outweigh the costs (32%, compared to 16% of lawyers in mid-sized firms).
Watch: The changing landscape for mid-sized firms in 2024
2024 legal trends for mid-sized law firms
With the rapid evolution of new systems and technologies in the past year, mid-sized firms are presented with significant opportunities for growth and efficiency, opening up a realm of possibilities. However, to capitalise on these opportunities and maintain competitiveness, mid-sized firms must navigate today’s complexities inherent in their diverse organisational structures within today’s legal landscape.
At Clio, we are dedicated to understanding and addressing the distinctive requirements of mid-sized and large law firms. We are committed to providing the tools and assistance essential for your firm’s advancement and growth, with ongoing investments in enhancing product functionality and creating thought leadership materials explicitly tailored for mid-sized law firms.
Discover why over 1,000 mid-sized firms rely on Clio to elevate their practices.
Read the 2024 Legal Trends for Mid-Sized Law Firms report to discover more trends affecting mid-size firms.
