Discounts, Markdowns, and Write-Offs - Know the Difference

Not all billing adjustments are the same. Discounts, markdowns, and write-offs each serve a different purpose and happen at a different stage of the billing process. Using the wrong one (or confusing them) can distort your financial reports and give you an inaccurate picture of firm profitability.

Here is the quick version: markdowns happen before invoicing, discounts happen during invoicing, and write-offs happen after invoicing. Let's dig into each one.

Markdowns - Pre-Invoice Adjustments

A markdown reduces the billable value of a specific entry before the invoice is created. It is entered on the slip itself, in a dedicated Markdown field that takes a dollar amount.

This is the part worth understanding: a markdown does not change the hours or the rate. You do not edit the time, and you do not edit the rate. The entry keeps every original value exactly as it was recorded, and the markdown is subtracted from the computed total as its own separate variable. Your worked value, your hours, and your rate history all stay intact. That is precisely what makes realization measurable later, because the original number survives alongside the reduced one.

When to Use Markdowns

• Efficiency adjustments - A junior associate took 3 hours on a task that should have taken 1.5 hours. The 3 hours stay on the record; you mark down the dollar value of the extra 1.5 hours so the client is not billed for them.
• Courtesy reductions on a single entry - You want to knock a specific amount off one piece of work without touching the rate you bill that client.
• Internal review - During pre-bill review, a partner decides certain entries are excessive and reduces them.
• Client guidelines - Some corporate clients have billing guidelines that cap time for specific activities. Mark down entries to comply.

How to Apply a Markdown

Discounts - Invoice-Level Adjustments

A discount reduces the invoice total before you send it to the client. The client sees the full charges and the discount as a separate line item. It is a courtesy or negotiated reduction.

When to Use Discounts

• Negotiated fee reductions - You agreed to a 10% discount for a long-term client
• Volume discounts - Reduced rates for clients who send a high volume of work
• Goodwill gestures - A courtesy discount to maintain a relationship after a difficult matter
• Prompt payment incentives - A discount for paying within a certain number of days

How to Create a Discount

In the Matter window, create a New Discount entry. The discount window gives you precise control over what gets discounted and by how much.

Write-Offs - Post-Invoice Adjustments

A write-off removes charges that will not be collected after the invoice has been sent. The client was billed, but payment is not coming. This is bad debt or uncollectible amounts.

When to Use Write-Offs

• Uncollectible invoices - A client cannot or will not pay, and you have exhausted collection efforts
• Partial payments - A client pays part of the invoice and you agree to write off the remainder
• Disputed charges - After a billing dispute, you agree to remove certain charges
• Statute of limitations - Invoices that are so old they are no longer worth pursuing

How to Record a Write-Off

A write-off is recorded in the Payment Center, as a payment type. There is no separate "write-off" command on a right-click or cog menu. You are telling TimeNet Law that the balance is being cleared without money arriving, so it runs through the same path as a payment.

Side-by-Side Comparison

Here is how the three adjustments compare:

• Markdown - Happens before invoicing. A dollar amount entered on the entry, in its own field. Hours and rate stay as recorded. Affects realization rate. Client never sees the original amount.
• Discount - Happens during invoicing. Reduces the invoice total. Affects realization rate. Client sees both the full amount and the discount.
• Write-Off - Happens after invoicing. Removes uncollectible charges from the outstanding balance. Affects collection rate. Client was already billed.

Example Scenario

An attorney bills 10 hours at $400/hour on a matter. Here is what each adjustment looks like:

• Original value: $4,000
• After an $800 markdown: The entry still reads 10 hours at $400. The Markdown field holds $800, so the invoice shows $3,200. Realization rate: 80%.
• After discount (10% off $3,200): Invoice total: $2,880. Client sees $3,200 minus $320 discount.
• After write-off ($500 uncollectible): You collected $2,380 of the $2,880 billed. Collection rate: 82.6%.

The overall effective collection on the original $4,000 of work: 59.5%. Understanding where the money goes at each stage is the key to improving firm profitability.

Impact on Firm Profitability Reports

Each adjustment type flows into different metrics in your financial reports:

• Realization rate = Billed / Worked. Affected by markdowns and discounts.
• Collection rate = Collected / Billed. Affected by write-offs.
• Overall effective rate = Collected / Worked. Affected by all three.

TimeNet Law tracks all three adjustment types separately, so you can pinpoint exactly where value is being lost. Is the problem that your team is over-working matters (markdowns)? That you are giving away too much (discounts)? Or that clients are not paying (write-offs)? The data tells the story.

Use the Right Tool for the Job

Markdowns, discounts, and write-offs are three different tools for three different situations. Use each one correctly, and your financial reports will give you an accurate, actionable picture of firm performance. Mix them up, and you are making decisions based on bad data.

Keep exploring:

• Contingency Billing - track matters where you are not billing hourly at all
• Tax Rules and Late Fees - billing compliance and overdue invoice management
• Custom Billing - advanced billing workflows