Realization Rate
What it shows: How much of the work performed actually gets billed to clients.
Formula:
Realization Rate = Billed Amount / Billable Amount x 100
Example: An attorney works 10 hours at $300/hr ($3,000 billable amount), but the invoice is sent for $2,500 after a write-down. Realization rate = $2,500 / $3,000 = 83.3%.
Why it matters: A low realization rate can indicate excessive write-downs, rate discounting, or inefficient time recording practices. It measures the gap between "what the work was worth" and "what the firm actually billed."
Corner cases:
Fixed fee matters are included at their fee amount (not by underlying time spent).
The rate used is the rate recorded on the time entry at the time of billing.
Collection Rate
What it shows: What percentage of billed amounts the firm actually collects in cash.
Formula:
Collection Rate = Collected Amount / Billed Amount x 100
Example: The firm bills $100,000 during a quarter and collects $94,600 (with $5,400 written off). Collection rate = 94.6%.
Scope: Calculated over invoices whose invoice date falls within the selected time period. Both the billed and collected amounts are based on invoices in that window, regardless of when the payment was actually received. In other words, the collection rate for a given period can change later as payments come in.
Corner cases:
Partially paid invoices: only the portion collected so far is counted.
Write-offs are tracked separately and feed into the Bad Debt Ratio.
Days to Collect and DSO
Two related metrics measure how quickly invoices are paid. Both use the invoice date as a starting point (not the date the invoice was created or sent, or its due date).
Days to Collect measures the elapsed time from invoice date to the last payment received on the invoice:
Days to Collect = MAX(Payment Date - Invoice Date)
This answers: "How long until we received the last dollar on this invoice?"
DSO (Days Sales Outstanding) is a weighted average that accounts for partial payments, weighting each payment's days by the amount paid:
DSO = SUM(Days to Collect x Payment Amount) / SUM(Payment Amount)
This answers: "What's the effective average collection time, given how much was paid at each point?"
Example: $10,000 invoice dated Jan 1. Payment 1: $8,000 on Jan 20 (20 days). Payment 2: $2,000 on Feb 15 (46 days).
Days to Collect = 46 days (the latest payment)
DSO = (20 × 8,000 + 46 × 2,000) / 10,000 = 25.2 days
For single-payment invoices, both metrics produce the same result.
Corner cases:
Invoices with no payments: Unpaid invoices are excluded from the average (they would distort the metric). Open invoices appear on the A/R aging report instead.
Write-off-only "payments": If a payment consists entirely of a credit/write-off with no cash, it is excluded from both calculations.
Bad Debt Ratio
What it shows: The percentage of billed amounts that were written off rather than collected.
Formula:
Bad Debt Ratio = Total Write-off / Total Billed x 100
What counts as a write-off:
Negative invoice-level adjustments — When the invoice total is reduced after it was finalized and sent to QBO with a negative line item.
Payment-level credits — When a payment is applied with a credit memo
Both types of write-off are combined in the calculation.