Mid-sized firms excel at billing, struggling with collecting, says Clio report

While the proportion of business hours mid-sized law firms spent on billable work has climbed to nearly 50 percent, those firms are lagging on ensuring those bills are paid, according to Clio’s 2024 Legal Trends for Mid-Sized Law Firms report.

The report revealed several trends impacting mid-sized firms. There has been a significant increase in billable work, but smaller firms are better at settling tabs than mid-sized firms, partly due to the former’s greater adoption of online payment systems. The report also found that both mid-sized and small firms are more cautious about implementing AI than their clients would like them to be. And small firms with fewer resources stand to gain a competitive advantage from broader implementation.

“The mid-size law firm is probably underreported and underserved,” says Joshua Lenon, a lawyer in residence at Clio. “They're the middle child of legal professionals. Everybody talks about your Seven Sisters, your Bay Street law firms. And solos make up such a large percentage of practicing lawyers in Canada that just by sheer number, they get some attention.”

“But then there's this forgotten middle, and I think this report is showing that there's a lot to be learned still about mid-sized law firms and they have their own unique challenges, their own unique solutions.”

Since Clio began its annual reporting on mid-sized law firms in 2016, the billable hours mid-sized firms have captured have grown by 60 percent. The average lawyer at a mid-sized firm is also earning more. They are billing 140 percent more and collecting 180 percent more than in 2016.

For the first time this year, Clio measured lockup: the amount of a firm’s annual revenue trapped as either unbilled or uncollected. Mid-sized firms are good at producing invoices but less so at collecting. Clio found the median time it takes mid-sized firms to collect on a bill was 52 days.

“Once they get the bills out the door, they're waiting around two months for bills to get paid,” says Lenon. “There’s always two months of their annual revenue locked up and inaccessible. That means they're having to rely upon things like lines of credit and debt to keep the law firm afloat.”

He adds that Clio estimates a “very steep drop” in 2023’s collection rate: from a high of 90 percent down to 83 percent.

Clio’s report showed that lawyers at mid-sized and smaller firms are still skeptical about AI’s capabilities and reliability. But many are using it. Nineteen percent of lawyers say they use AI for marketing, 14 percent for research, 13 percent for document drafting, and 9 percent for litigation discovery.

“We looked at AI and, interestingly, what we see is that while lawyers at mid-sized law firms are very unlikely to believe that AI can actually improve the quality of legal services, there is a larger percentage of clients who do feel that there are quality gains to be made by using AI in the practice of law,” says Lenon.