Mid-sized law firms, which could be referred to as the middle child of the legal industry, have often been overlooked in many news outlets while large scale corporate firms take the limelight. According to the US Census County Business Patterns Report, there are over 9,000 mid-sized law firms in the United States, which is nearly 80 times more than large law firms, employing over 400,000 individuals altogether.
Based on recent coverage at this year’s Legalweek and Clio’s 2024 Legal Trends report, it’s clear these mid-sized firms have caught the attention of the legal industry. The Clio report highlights that the average attorney in a mid-sized law firm has seen a significant increase in billing, nearly 160% more and collection 200% more than in 2016. Furthermore, the firms are outpacing smaller firms when it comes to billable growth, with an increase of 59% in billable hours since 2016 compared to the roughly 30% from small firms. Read more about the report here.
Despite these striking statistics showing the success of mid-sized firms, a significant challenge appears to be looming over them. While these firms are billing more work, they seem to lag behind when it comes to bringing the billed earnings to their bank accounts. Joshua Lenon from Clio explained this could be due to their substantial headcount that includes non-time-keeper employees, leaving a paradoxical situation where effectively handling collections and realization becomes a problem. This appears to be a particularly prevalent problem for mid-sized firms that usually have more overhead than small firms.
Furthermore, Lenon discussed a concept borrowed from the accounting world – lockup. Lockup refers to the money owed to the firms and expected to be paid eventually but stays out of their hands for an extended period. The longer these lawyers wait for their earnings, the more money they’re likely losing, which poses a significant issue for these mid-sized firms.
The problem of not being able to collect on time might be traced back to the firms’ cultural workings. Many regional mid-sized law firms enjoy long-lasting relationships with their clients and might avoid pushing them for payments, trusting that they would pay in due time. However, this trusting nature might be leading these firms to leave more money on the table. These firms are also not making enough use of the technological advancements that small firms are applying and large law firms are investing in, leaving these mid-sized firms in a difficult position to survive in a rapidly changing legal landscape.
Lenon advises that these mid-sized firms must leverage the technology available to improve their realization rates and collection rates, which currently lag smaller firms. With the infiltration of large law firms into smaller markets, the importance of making efficient use of available technology and capitalizing on all billed earnings becomes evermore crucial for mid-sized firms. Legal professionals can read more about mid-sized firms leveraging technology here.