In our previous article we addressed the practice of open and transparent billing. In this article we will look at billing disbursements and expenses.
There is often much confusion regarding the differences between disbursements and expenses and how these should be billed to clients.
These may be defined as the recovery of a portion of a firm’s office overheads and are recorded as GST exclusive. Some examples of these may be for a portion of the telephone and internet charges, photocopying of documents and other expenses incurred specific to the cost of servicing the firm’s clients.
b. Disbursements These are specific costs incurred with an independent third party on behalf of a client and must be supported by an invoice, such as LINZ fees, agency fees or couriers fees and must be supported by an official invoice. Disbursements must be separated out from expenses, are charged to the client at cost and may not be inflated, and are recorded as GST inclusive.
When drafting bills, a number of fundamental errors are often made, such as:
how to correctly structure the bills;
how to correctly identify the legitimate expenses that may be recovered;
how to distinguish between expenses and disbursements to be included in the bills; and
how to correctly and legitimately recover both expenses and disbursements, as required by the Lawyers and Conveyancers Act (Lawyers: Rules of Conduct and Client Care) 2008 (LCA Rules 2008) (Rules), which may include:
r3.4(a) and r3.4A(a) providing advance information of the basis on which fees will be charged;
r9 principles of charging; and
r11.1 avoiding misleading or deceptive practices.
In regard to billing issues, firms commonly fall into one of two categories; those firms who erroneously conflate the expenses and disbursements, may also be found to inflate disbursements, both these practices falling foul of the rules. Then there are those firms fearful of falling foul of the rules, end up leaving significant money on the table by not recovering legitimate costs. Should your firm fall into either of these two categories, it may be in the best interests of the firm to obtain assistance to correct your firm’s billing practices to ensure compliance and/or to maximise the legitimate recovery of your firm’s expenses. In the next issue, we will address Agency Fees.