Posts

The American Bar Association First Ethics Opinions on AI

/in /by

Artificial intelligence is an increasing concern in the law industry, even if most lawyers do not recognize the true extent of its potential impact yet. To that end, the American Bar Association offered some guidance regarding the ethics of using Generative AI tools, with the publication of Formal Opinion 512, in July. Their restrained approach to the topic is eye-opening, which might not fully capture the profound changes AI will bring to the industry at large.  

The main points of Opinion 512 cover “the growing use of Generative Artificial Intelligence (GAI) in the practice of law, pointing out that model rules related to competency, informed consent, confidentiality, and fees principally apply.” On that last topic, the ABA suggests that lawyers should not charge clients for the time spent learning how to use Generative AI, as maintaining competence is part of their professional responsibility. However, if a client specifically requests a GAI tool that the lawyer is unfamiliar with, the lawyer could bill the time needed to learn it, but only if both parties agree on the new billing terms in advance. 

If we leave it at that, it seems more than a reasonable opinion. However, the ABA is being very conservative in its view of a technology that will fundamentally change how law services work and are billed. On one hand, lawyers might start to simply charge more flat fees instead of hourly billing out of practicality, hoping to avoid the complexities of tracking time spent on learning and implementing AI tools. 

On the other hand, flat fees can also fail to account for different levels of complexity in any given case. As AI continues to evolve and become more integrated into the legal market, the gap between the time saved by AI and the flat fees charged may widen. Lawyers could either overestimate AI’s efficiency and undercharge for their services or underestimate it and overcharge clients, causing potential disputes. 

Moreover, the flat fee approach might discourage lawyers from investing time in mastering Generative AI tools without a direct financial incentive to do so, stifling innovation and slowing down the adoption of AI in mid-sized law firms. And those who do invest the time might find themselves at a competitive disadvantage if they are unable to recoup those costs. 

But that’s just part of the issue. Looking at the big picture, the ABA’s current stance could soon become a relic from a bygone era, not fully addressing the potential for AI to make certain legal services obsolete, changing the way many law firms currently operate. As AI tools become more capable and sophisticated, handling tasks that were previously billable hours for lawyers could disappear across the board, forcing law firms to reconsider their entire structure, from pricing, to staffing, to client dynamics. And there is a lot of work to be done to get there. 

For example, junior associates or paralegals often spend hours sifting through documents to identify relevant information for a case. With Generative AI tools, this process could be completed in a fraction of the time, challenging the existing business models of the law firms that rely heavily on the revenue generated from these time-intensive tasks. 

AI’s impact on legal research also could further disrupt traditional billing practices. AI-powered tools can rapidly analyze case law, statutes, and legal precedents, providing lawyers with precise results in a much shorter timeframe. In the near future, it might even be able to predict case outcomes or even generate legal arguments, further diminishing the need for extensive research hours. This would certainly benefit clients in terms of cost but could pose significant challenges for traditional revenue models. 

All in all, it’s worth reviewing and seeing what regulatory bodies are thinking, and the ABA’s cautious approach doesn’t fully acknowledge the broader implications of this technology. By focusing on competency and billing for AI-related tasks, the transformative potential of AI in reshaping legal services gets overlooked. This may be sufficient for now, but as these technologies evolve, the industry will need more forward-thinking policies that address not just how lawyers bill for their time, but also how they redefine value in a landscape where human expertise may no longer be the sole currency. The challenge moving forward will be to create practices that are as dynamic and adaptable as the technology they are meant to accommodate. 

The Right Way a Law Firm Should Organize Its Invoicing and Collections Processes

/in , , , , , /by

Lawyers are bad at being paid on a timely basis. According to a 2023 report published by Clio, concerning mid-sized law firms: 

  • 11% of legal fees go unpaid on average across the industry. 
  • The average time gap between sending an invoice and getting paid in full is 52 days.

This tells us that most law firms don’t recognize that even seemingly modest reductions in the payment cycle will make a large impact on cash flow. However, in our experience, many of the most egregious problems can be avoided by changing one aspect of the invoicing and collection process.  

Too many firms create a general system and then expect specific cases to fit neatly into them, treating them as being uniform or very similar. That approach is fatal to effective collections and to avoid increasing your accounts receivables. Treating every client as fungible is like betting the same amount on every poker hand. 

A better and more effective approach is to treat clients not as uniform but as essentially and predictably variable.  Some clients are more likely to have problems paying you on time; for example, for practice areas like Family law, it’s common to see cases dragging longer than expected, with an increasing emotional and financial toll that needs to be taken into account, especially when the result is not shaping up to be what the client wants.  

Thus, the best systems identify these red flags and adjust to them. You need collection systems that measure and vary alongside the risk of non-payment. This allows your firm to be proactive about the issue, creating strategies to deal with potentially problematic clients from the very beginning. For high-risk clients or cases, consider requiring a larger retainer upfront, getting paid in full before any court decision, or setting shorter payment deadlines with more frequent, even daily, billing intervals. 

In other words, client management is an important part of the collection process, and lawyers should be more sensitive to the risks of non-payment that every client can present. Technology can be a key aspect to streamline this. Billing software can automate reminders, track payment deadlines, and provide clients with easy-to-use payment portals to reduce the administrative burden on your firm. And they can also provide valuable insights into payment patterns, helping you refine your risk assessments over time. 

The bottom line is that a well-organized invoicing and collections process is key for your law firm’s cash flow and overall financial stability. Start recognizing the variability of your client’s payment behavior and maintain clear communication to significantly reduce the risk of non-payment. After all, a law firm that is diligent about its own financial health is better positioned to serve its clients effectively.