Big Law’s Revenue Leakage from Inefficient Collections Practices
Trending Topic: Law Firms Grapple with Financial Losses Amid Inconsistent Billing Strategies
New York, NY – August 21, 2025 – Major U.S. law firms, particularly those in the Am Law 200, are facing significant revenue losses due to inconsistent and individualized collections practices, with industry estimates suggesting a leakage of 15% to 25% of potential revenue, according to a Law.com report published on August 19, 2025. This persistent issue, driven by inefficiencies in billing and collections, is costing firms millions annually, with no universal solution in sight due to the varied nature of the problem across firms and individual partners.
The challenge stems from a combination of factors, including prolonged collection cycles, partners writing down bills before they are sent, and a lack of standardized processes. A 2023 Citi Private Bank Law Firm Group report noted a 5% increase in the time taken to send and collect paid bills over the first nine months of the year, a trend that has continued to hinder revenue and profit growth for nearly two years. Industry experts, such as Kristin Stark of Fairfax Associates, warn that a deepening collection lag could heighten financial anxiety among firms, particularly as costs rise and transactional work remains subdued.
Root Causes of Revenue Leakage
The Law.com report highlights that Am Law 200 firms lose substantial revenue due to informal collections practices. For example, partners often reduce bills before invoicing clients, eliminating charges for perceived low-value work, which contributes to a gap between agreed and collected rates. A Thomson Reuters report earlier this year indicated that most declines in realization rates occur before bills are sent, pointing to internal firm behaviors as a primary driver. “The discontent with higher rates appears to be coming from inside their own offices,” the report noted, emphasizing the need for better partner training on pricing confidence.
Unpaid invoices and delayed payments further exacerbate the issue. According to MyCase, a firm billing $1 million annually but collecting only 85% could leak $150,000 yearly due to unaddressed accounts receivable. Other sources of leakage include unbilled time, untracked reimbursable expenses, and inconsistent contract terms, which can go unnoticed without disciplined auditing. The complexity of these issues varies across firms, making a one-size-fits-all solution elusive.
Strategies to Stem the Tide
Industry leaders suggest proactive financial management to mitigate revenue leakage. Implementing automated billing and collections software, such as MyCase Smart Spend, can streamline expense tracking and invoicing, reducing human error. Establishing clear pricing policies and approval processes for deviations can prevent partners from offering unauthorized discounts. Regular audits of time records, contracts, and reimbursable expenses are also critical to identifying discrepancies early. For instance, comparing time spent on similar cases or analyzing client invoices against contracted rates can uncover hidden losses.
Gretta Rusanow, managing director at Citi Private Bank’s Law Firm Group, emphasized that rate increases, which hit a record 8.2% in 2023, have generally been accepted by clients, suggesting that the slowdown in collections is not due to client pushback but rather internal inefficiencies. Firms are urged to coach partners on standing behind their bills and to leverage technology to monitor financial benchmarks like collection and utilization rates in real-time.
Industry-Wide Implications
The revenue leakage problem comes at a time when Big Law firms face additional pressures, including rising operational costs and a sluggish rebound in deal work, as noted by Citi. While some firms, like Latham & Watkins, reported robust revenue growth of 23% to $7 billion in 2024, others, such as Fish & Richardson, saw declines partly due to slow contingency collections. The broader legal industry is also navigating challenges like cybersecurity threats and the adoption of generative AI, which could further impact billing efficiency if not managed effectively.
Posts on X reflect growing awareness of financial inefficiencies in the legal sector, with users highlighting the need for modern billing practices to boost profits and cash flow. As firms strive to remain competitive, addressing collections inefficiencies will be critical to sustaining profitability and supporting investments in talent, technology, and global expansion.
Sources: Law.com, News.BloombergLaw.com, MyCase.com, Forecast.app