Although firms handle contingency cases differently, the following is the most common and recommended way.
When your firm takes on a contingency fee case, set up the Matter with a Fee Arrangement of Contingency. We also suggest you change the Default Fee Status setting (on the Billing Options Tab) to Deferred and the Default Expense Status setting to Selected. If you will not be billing the Client directly for Costs and Expenses (costs and expenses to be paid by any settlement), set this to Deferred. We recommend you set up the Matter to use the Standard Billing Rate as the Default Rate Code.
Time should be entered by Timekeepers for these Contingency Matters in the same manner they enter time for hourly Matters. This is imperative – if you do not enter time on these Matters, you cannot get an accurate measurement of what you gained or lost on the case.
At the end of every month, run your Aged Work in Process Report with a Summary by Fee Arrangement – this will give you a breakout at the end of the report as to how much of your work in process is on Contingency versus Hourly Matters. This is important in budgeting monthly billings and receipts. When you generate invoices, make sure the Client-Matter gets billed for any Costs or Expenses if this is part of your arrangement with them. We would suggest periodically reviewing any new time entered on these Client-Matters (use your cutoff filters in Prebill Manager) to make sure there are no transactions that belong to another Client-Matter and can be billed.
The confusion on Contingency Matters typically comes when the case has been settled. If you have a contingency case that settles and your firm will receive $200,000, you will do the following.
1. Enter the $200,000 check as a Retainer Deposit or a Trust Deposit through AR Entry.
2. Print a Prebill for the Client-Matter to make sure there are no time or expense transactions that belong to another Client-Matter.
3. Typically, you are going to want to use the money to pay off all Costs and Expenses prior to using any of it for Fees so check to see what the total expenses/costs are versus what the total fees are. For this example, we will assume there is $1,000 in costs/expenses work in process and $250,000 in fees work in process.
4. Based on these numbers, you will have $199,000 of the retainer/trust balance available for application to Fees. In Bill Preparation, select all Fee transactions for billing and then write down all Fees to $199,000. After you do this, check the INVOICE RECAP Button and make sure the total bill amount is $200,000.
5. Before generating the Invoice, create a RAP/TAP for $200,000 in the AR Entry Program or Voucher Entry (TAP only) Program. Once you have created this, generate the Invoice. The Invoice should print showing Total Current Charges of $200,000 ($1,000 in Costs/Expenses and $199,000 in Fees), less Retainer Applied as Payment/Trust Applied as Payment of $200,000 with a Total Amount Due of $0.00.
6. Post the Invoice, and then apply and post the RAP/TAP.
To measure your gain/loss on this file you should print a Billing Realization Report. Obviously, if you had too many of these types of cases where the investment of time was much greater than the money received, the Firm may want to reconsider whether or not it should continue to accept these types of cases.