Financial Management: Law Firm Flashcards
Q: Why must law firms ensure their income exceeds expenses?
A) To comply with SRA regulations
B) To remain profitable and sustain operations
C) To qualify for tax benefits
D) To increase hourly billing rates
B) To remain profitable and sustain operations
Q: Which of the following is not a typical law firm expense?
A) Rent and salaries
B) Marketing and IT
C) Client compensation payments
D) Insurance and compliance costs
C) Client compensation payments
Q: How do law firms track time under the hourly billing model?
A) In 30-minute sessions
B) In 6-minute increments as Work in Progress (WIP)
C) In daily blocks
D) Only for court appearances
B) In 6-minute increments as Work in Progress (WIP)
Q: In a Conditional Fee Agreement (No Win, No Fee), when does a lawyer receive payment?
A) Upfront before the case begins
B) If the client wins the case
C) Regardless of case outcome
D) Monthly as agreed with the client
B) If the client wins the case
Q: In which area of law are fixed fees most commonly used?
A) Commercial litigation
B) Family disputes
C) Conveyancing and wills
D) Personal injury claims
C) Conveyancing and wills
Q: How does a capped fee arrangement work?
A) The client pays a fixed amount regardless of work done
B) The firm bills hourly but cannot exceed a pre-agreed limit
C) The client only pays if the solicitor wins the case
D) The fee is based on the solicitor’s discretion after the case ends
B) The firm bills hourly but cannot exceed a pre-agreed limit
Q: When are legal fees covered under an insurance policy?
A) Only if the client is unable to afford legal representation
B) When the solicitor works pro bono
C) When an insurer assigns a solicitor from an approved panel
D) Only in personal injury claims
C) When an insurer assigns a solicitor from an approved panel
Q: Who is eligible for Community Legal Service (CLS) / Legal Aid?
A) Any client with a legal issue
B) Clients who pass both a financial means test and a merit test
C) Only clients in civil disputes
D) Clients who earn above a certain income threshold
B) Clients who pass both a financial means test and a merit test
Scenario: A client wants to create a will and asks how much it will cost. They prefer a clear, upfront price rather than being billed for time.
Which billing method is most suitable?
A) Fixed fee
B) Hourly billing
C) Conditional Fee Agreement
D) Insurance-based billing
A) Fixed fee
Scenario: A personal injury solicitor agrees to take on a client’s case under a Conditional Fee Agreement (CFA).
Before accepting the case, what must the solicitor carefully assess?
A) The likelihood of winning and the potential damages awarded
B) Whether the client is willing to pay hourly fees
C) If the solicitor’s costs will be reimbursed regardless of outcome
D) Whether the case is criminal or civil
A) The likelihood of winning and the potential damages awarded
Scenario: A solicitor is working on a commercial dispute with a capped fee of £10,000. Midway through, the costs reach £9,500.
What must the solicitor do?
A) Stop work and request a renegotiation before exceeding the cap
B) Continue working without informing the client
C) Increase the cap without client consent
D) Write off any additional costs beyond the cap
A) Stop work and request a renegotiation before exceeding the cap
Scenario: A client is involved in a litigation case but has an insurance policy that covers legal costs.
How does insurance-based billing typically work?
A) The client chooses any solicitor they want, and the insurer pays
B) The insurer assigns a solicitor from an approved panel
C) The client pays first and is reimbursed later
D) The solicitor cannot charge for their services
B) The insurer assigns a solicitor from an approved panel
Scenario: A client seeks legal representation for a family law matter but cannot afford private legal fees.
Before receiving legal aid, what must they pass?
A) A financial means test and a merit test
B) A government assessment on case importance
C) A private consultation with a solicitor
D) A court approval process
A) A financial means test and a merit test
Scenario: A solicitor spends 2 hours and 12 minutes drafting a contract for a client under an hourly billing model.
How should they record their time under Work in Progress (WIP)?
A) 2.0 hours
B) 2.2 hours
C) 2.3 hours
D) 2.5 hours
C) 2.3 hours (recorded in 6-minute increments → 2 hours 12 minutes = 2.3 hours)
Scenario: A solicitor provides a client with a fee estimate of £5,000 for handling a probate matter. Due to unforeseen complexities, the costs increase to £7,500.
What should the solicitor do?
A) Notify the client as soon as possible and obtain consent to exceed the estimate
B) Charge the full £7,500 without informing the client
C) Stop working on the matter until full payment is received
D) Write off the extra £2,500
A) Notify the client as soon as possible and obtain consent to exceed the estimate
Scenario: A law firm is struggling to remain profitable due to high operational costs.
Which of the following is a valid strategy to improve financial stability?
A) Reducing compliance-related expenses to cut costs
B) Increasing billing transparency and ensuring prompt payment collection
C) Eliminating fixed-fee services to charge higher hourly rates
D) Ignoring outstanding invoices to focus on new clients
B) Increasing billing transparency and ensuring prompt payment collection
Scenario: A corporate client is concerned about unpredictable legal fees but still wants flexibility in case the matter requires extra work.
Which billing model is most suitable for this client?
A) Fixed fee
B) Capped fee
C) Conditional Fee Agreement
D) Hourly billing
B) Capped fee
Q: Which of the following statements about legal aid is correct?
A) Legal aid is available for all legal matters
B) Legal aid requires firms to have a contract with the Legal Aid Agency
C) Any solicitor can offer legal aid services without prior approval
D) Clients only need to pass a financial means test
B) Legal aid requires firms to have a contract with the Legal Aid Agency
Scenario: A solicitor provides a client with an initial estimate for legal services but later realizes that additional work will be required, increasing the overall cost.
What should the solicitor do?
A) Proceed with the extra work and invoice the client at the end
B) Notify the client and seek approval for additional costs
C) Continue under the original fee estimate regardless of extra work
D) Stop working on the case immediately
B) Notify the client and seek approval for additional costs
Q: What is a key ethical obligation for solicitors regarding billing?
A) Charging clients the maximum possible fees for all services
B) Providing clear, honest, and transparent billing information
C) Avoiding discussions about costs until the final invoice is issued
D) Always requiring clients to pay a full retainer upfront
B) Providing clear, honest, and transparent billing information
