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2023 Clio Report: Firms Enjoying Steady Growth, But Still Struggling With Collection
February 16, 2024
As an in-depth examination of the state of legal practice, Clio’s 2023 Legal Trends Report brings together critical insights into the biggest challenges facing modern law firms. Here are some of our key findings and what they mean for legal professionals.
The general conclusion is that law firms are growing steadily, but they must improve their collection processes. In 2023 legal professionals were working, on average, at least 40 percent more cases and billing and collecting more (70 percent and 72 percent, respectively) compared to 2016.
Key performance indicators (KPIs) — i.e., utilization, realization, and collection rates — also show that legal professionals were enjoying steady growth and improved performance in 2023. However, we note decreased performance when it comes to overall collection rates, suggesting that law firms are struggling to get paid.
The general conclusion is that law firms are growing steadily, but they must improve their collection processes. In 2023 legal professionals were working, on average, at least 40 percent more cases and billing and collecting more (70 percent and 72 percent, respectively) compared to 2016.
Key performance indicators (KPIs) — i.e., utilization, realization, and collection rates — also show that legal professionals were enjoying steady growth and improved performance in 2023. However, we note decreased performance when it comes to overall collection rates, suggesting that law firms are struggling to get paid.
Collection Rate Struggles
For law firms to understand why they may be having a hard time with collections, they must pay close attention to how quickly and consistently they are getting paid. Far too many firms find their revenue held in “lockup” — the period in which billable work has been neither invoiced nor collected.
Lockup consists of three components:
- Realization Lockup. The amount of revenue that is unbilled at any given time (also known as “work-in-progress lockup”).
- Collection Lockup. The amount of revenue that is uncollected at any given time (also known as “debtor lockup”).
- Total Lockup. A combination of revenue held in both realization and collection lockup.
Our analysis indicates that the median realization lockup among law firms is 38 days, and the median collection lockup is 45 days. These calculations amount to a total lockup of 97 days, which means that, at any given time, law firms have performed more than three months’ worth of work that has not been billed out or collected.
One proven method of reducing lockup is using cloud-based legal practice management software, which can largely automate billing and remove roadblocks that would otherwise delay the billing and collection process. For example, our analysis indicates that Clio customers experienced an average lockup period that was 43 days shorter than the median lockup period.
Outside of the billable work that lawyers and other legal staff perform daily, being able to capitalize on that work is critical to realizing the time and resources that a firm invests in its clients.
However, many law firms struggle to invoice their work and collect payment. Almost one in three legal professionals agree that their firm takes too long to get bills out to clients, and less than half say that they bill in a timely fashion.
This year, we’ve uncovered several “KPI levers,” or software features that make a big difference in improving realization and collection rates, including email billing and bulk billing. These findings underscore the cumulative impact that technology can have on law firm performance.
AI and the Future of Law
The advent of large language model AI marks the most significant technological development in recent years, and we’re at the precipice of another massive technological advancement that promises to radically enhance the legal profession.
On average, lawyers appear hesitant to wholly adopt AI technology. These feelings appear to be at odds with the perceptions of the public. For example, 32 percent of clients versus 19 percent of legal professionals think that AI’s benefits outweigh the costs, or that the justice system could be improved with AI.
Additionally, 27 percent of clients think courts should use AI and 17 percent of legal professionals agree, while 32 percent of clients versus 21 percent of legal professionals say AI improves the quality of legal services.
Despite this hesitance among legal professionals, 19 percent of lawyers are using AI in their practices, and 51 percent want to use it in the future. Furthermore, 71 percent of legal professionals who want to use AI in the future say they want to do so within the next year.
For more insights on the state of legal practice, download the 2023 Legal Trends Report today.
Kate Rattray is a content writer at Clio.
