Legalmaster offers you three ways to enter a discount. Each one has options. Each also affects the appearance of the bill differently and is reflected on management reports differently.
We're listing them here in order from what we believe to be worst to best, but you must make the ultimate judgement yourself.
I. Negative Sales tax
Legalmaster allows you to calculate and charge sales tax. Inasmuch as most attorneys, at least in the US, don't charge sales tax, you're free to use this feature for an entirely different purpose.
You may apply the sales tax to any combination of fees, direct costs and indirect costs. You may caption it anything you want on the bill, such as "photocopies" or "office overhead" or "discount." You may apply it to some matters and not to others, and you may charge different matters different rates. You may charge a positive or a negative amount. So, one possibility is that you charge, for example, a negative 10%. If your bill comes to $1000, Legalmaster can add a line that reads
Discount . . . . . . $100.00CR
The advantage of this method is that it's very easy. Legalmaster performs the calculation for you.
The disadvantage is that on management reports it overstates your fee billings. If you use Legalmaster's Revenue Allocation module, your timekeepers would appear to bill and collect more in fees than would be accounted for had you used either of the two methods below.
II. Fee Adjustment
An adjustment is a accounting entry typically used to reduce your accounts receivable after you have billed your client. It is generally entered as a result of a decision made by your client, not by you. If a client refuses to pay all or a portion of a bill and you accept his decision, you would enter a credit adjustment.
You can also use an adjustment to provide your client with a discount.
The advantage of this method is that it appears in a separate section of your statement below your total charges, so your client sees his charge both before and after the discount.
The disadvantage is that on management reports you must make a special provision to separate adjustments entered as discounts from adjustments entered to reflect bad debts. (You do this with grouping codes.) It would appear to the uninitiated that your client paid just a portion of his bill.
III. Fee Write-down
This is the method we usually recommend.
A write-down is a transaction that is used to decrease how much you bill your client. The decision to enter a write-down is made prior to billing. In this respect it is to be distinguished from an adjustment, which is entered after billing. You may enter write-downs in a number of ways and you may reflect them on bills in a number of ways. Your decisions have to do with the usual two issues - what you want your client to see on his or her bill and what you want to see on your management reports.
The critical question to answer is "Do you want your client to know you wrote down your charges?"
YES - We call this an explicit write-down.
If you answer this question with a "yes," you must then decide how you want the write-down to appear on the bill. You have three basic options.
You may show the write-down as a single fee transaction. Most people have it appear as the final fee entry. If you wish the write-down to be distributed among multiple timekeepers, you may enter a series of transactions, assigning each to a different timekeeper, but have them consolidated on the bill as a single transaction (by using grouping codes) as we did in the second sample bill below. Each transaction is entered as a fee with the actual amount set to zero and the billable amount set to a negative number equal to the amount of the write-down. If you want to distribute the write-down proportionally among everyone who worked on the matter, use Legalmaster's Automatic Distribution of Write-downs; it's a real time saver.
You may show the write down transaction by transaction. In this case you add a column to the fees section of the bill. That column shows the number of hours for which you aren't charging. Notice in this case the dollar amount written down is not made apparent to your client. The third sample bill below shows an example of this. In this case you do not enter an explicit write-down transaction. Instead you merely modify each of the individual fees you wish to write down. This may be done in two ways.
You may write down individual transactions by reducing the billable hours on those you wish to affect.
You may automatically distribute the write down over a number of transactions. Since you're showing hours written down in this case, you must select the option to adjust hours.
The most subtle way of reflecting a write-down on a bill is to show the effect on dollars while still showing the actual hours worked. You may use this method only if you show both hours and amount on your bill and your client is familiar with your usual billing rate. For example, let's say you worked 1 hour normally worth $200, but only wish to charge $150 for the entry. While your actual hours would be 1 and your actual amount would be $200, you would reduce your billable amount to $150 while leaving the billable hours at 1. As a result your client would see an entry for 1 hour with an amount of only $150.
NO - We call this an implicit write-down.
If you prefer not to let your client know you wrote down your charges, then your simplest option is to enter the write down by altering existing fee transactions rather than by entering a new fee. In this case you merely reduce the billable amount on whatever transaction(s) you wish to affect. If your client is familiar with your billing rates and you show hours on your bills, then you must reduce the billable hours, as well. You may write-down individual transactions of your choice or you may use Legalmaster's automatic distribution of write-downs option. The first sample bill below serves as an example. Prior to the write-down, the fees were worth $640.50. The $142 write-down brought the charge to $498.50.
The critical thing is that all three of these bills are for the same amount. All resulted from $640.50 in fees being reduced to $498.50. All will be reflected on management reports in precisely the same way; i.e., that your actual fees were worth $640.50, that you wrote down $142.00 and that you billed $498.50.
This first bill yields no clue that anything untoward happened. The client sees charges adding to $498.50 and is given no information to reveal that the original value of the time was higher. In this case, even the hours were reduced.
Laurie's Law Firm
1440 Broadway
10th Floor
Oakland, California 94612
Federal Tax ID: 94-2663290
October 22, 2001
Fireman's Fan Assurance
Janice Queenan
300 Marlborough Way
Novato CA 94009
Our identifying code for this case FF-WILSON
Invoice number 226
Plaintiff's name: Wilson, Louise
Insured's name: Durante, James
Claim number: 407-H-6390005-28-000
____________________________________________________________
Statement of Services Rendered
____________________________________________________________
Atty Services rendered Hours Amount
10/02/01 JSR Telephone conference with opposing attorney regarding
selection of ties for upcoming court appearance 0.5
10/05/01 SLC Preparation of documents for JSR's court appearance
next week 0.3
10/10/01 JSR Court appearance in San Francisco County Superior Court 0.2
10/11/01 LL Alphabetizing about 2000 index cards that JSR dropped 0.9
10/18/01 PHR Meeting with JSR regarding telephone conference with
Judge Rostov regarding JSR's tie 0.6
------- -------------
Total professional services through 10/18/01 2.5 $498.50
------- -------------
Prior balance $18,299.81
Total amount due and payable $18,798.31
=============
Here we see what is essentially the same bill as the one above, but this time, the write-down is explicitly shown. Now the client sees the time actually worked along with one additional entry (the write-down), so he can see his savings.
Laurie's Law Firm
1440 Broadway
10th Floor
Oakland, California 94612
Federal Tax ID: 94-2663290
October 22, 2001
Fireman's Fan Assurance
Janice Queenan
300 Marlborough Way
Novato CA 94009
Our identifying code for this case FF-WILSON
Invoice number 227
Plaintiff's name: Wilson, Louise
Insured's name: Durante, James
Claim number: 407-H-6390005-28-000
____________________________________________________________
Statement of Services Rendered
____________________________________________________________
Atty Services rendered Hours Amount
10/02/01 JSR Telephone conference with opposing attorney regarding
selection of ties for upcoming court appearance 0.6 210.00
10/05/01 SLC Preparation of documents for JSR's court appearance
next week 0.4 40.00
10/10/01 JSR Court appearance in San Francisco County Superior Court 0.3 105.00
10/11/01 LL Alphabetizing about 2000 index cards that JSR dropped 1.1 137.50
10/18/01 PHR Meeting with JSR regarding telephone conference with
Judge Rostov regarding JSR's tie 0.8 148.00
10/18/01 SLC Write-down because you're such a great client 0.7- 142.00CR
------- -------------
Total professional services through 10/18/01 2.5 $498.50
------- -------------
Prior balance $18,299.81
Total amount due and payable $18,798.31
=============
Finally, this option lets you show your client, transaction by transaction, how much time you're not charging for. It's shown on the bill in the "Discount" column.
Laurie's Law Firm
1440 Broadway
10th Floor
Oakland, California 94612
Federal Tax ID: 94-2663290
October 22, 2001
Fireman's Fan Assurance
Janice Queenan
300 Marlborough Way
Novato CA 94009
Our identifying code for this case FF-WILSON
Invoice number 226
Plaintiff's name: Wilson, Louise
Insured's name: Durante, James
Claim number: 407-H-6390005-28-000
____________________________________________________________
Statement of Services Rendered
____________________________________________________________
Atty Services rendered Hours Discount Amount
10/02/01 JSR Telephone conference with opposing attorney
regarding selection of ties for upcoming
court appearance 0.5 0.1 175.00
10/05/01 SLC Preparation of documents for JSR's court
appearance next week 0.3 0.1 30.00
10/10/01 JSR Court appearance in San Francisco County
Superior Court 0.2 0.1 70.00
10/11/01 LL Alphabetizing about 2000 index cards that JSR
dropped 0.9 0.2 112.50
10/18/01 PHR Meeting with JSR regarding telephone
conference with Judge Rostov regarding JSR's
tie 0.6 0.2 111.00
------- ------- -------------
Total professional services through 10/18/01 2.5 0.7 $498.50
------- ------- -------------
Summary Hours Rate Amount
Jacob S. L. Rubin 0.70 350.00 245.00
Phillip H. Rubin 0.60 185.00 111.00
Laurie Leiber 0.90 125.00 112.50
Sarah L. Church 0.30 100.00 30.00
Prior balance $18,299.81
Total amount due and payable $18,798.31
=============