Legal Spend Management
How can law firms benefit from legal e-billing?
Law firm resistance towards e-billing
e-Billing and its parent discipline of legal spend management were initially created to serve in-house teams. The process requires law firms to submit invoices in a consistent LEDES format which enables automated invoice review by the corporate legal departments and consistent data for reporting. This saves the legal department a lot of time and money by improving productivity, reducing erroneous bills and enabling rate-comparisons and data-driven decision making.
e-Billing is now well understood and not only in the large firms. It’s estimated that over 70% of US mid-sized firms’ revenue is e-billed, and 25% in the UK. Many firms now have dedicated e-billing teams. Despite this, some firms remain resistant, mainly smaller firms who are processing smaller revenue amounts or are unfamiliar with e-billing and LEDES, as they will have a steeper learning curve and initial cost and resource impacts. These firms can be reluctant to use a tool that they perceive to have been forced on them, especially as, short-term, it will also mean their revenue decreases if the software spots and rejects invoices that do not meet the client’s billing guidelines.
Benefits of e-billing for law firms
The lessons are to be learnt from larger law firms, some of whom have been e-billing their clients since the 90s. While some of these firms will have also initially met e-billing with hesitation, they accept it is a cost of doing business with in-house clients, have fully functioning billing teams, and are now reaping the benefits and realising that it can be a strategic revenue driver for the firm.
Corporate legal departments are demanding transparent relationships
The kneejerk reaction to e-billing is that corporate clients are simply looking to crack down on billing errors and get the cheapest rates. Rather, legal departments are looking for transparency and consistency. They want to be sure they are paying the appropriate cost, not necessarily the lowest cost. This means not paying a partner to do work a junior could do, for example. Law firms that are not willing to be open about their line entry information may be perceived as hiding things. With so many law firms happily sharing this information, those that refuse to may find themselves short on work. With corporate legal teams looking for transparent relationships, refusal is a big risk to take.
Happier clients lead to higher revenue
Yes, automated billing guidelines will more than likely result in exposure of erroneous billing practices by the firm and a reduction in short term revenue as these invoices are corrected. The gain for the firm is longer-term. The purpose of e-billing is not to “name-and-shame” and then fire non-compliant law firms. Billing guidelines can be complicated and we’ve yet to find a law firm that doesn’t bill some errors. Corporate legal departments understand that this is down to a combination of human error and learning-curves, and it is completely expected as part of the implementation process. The benefit comes when the billing guidelines can be created, reviewed and amended so they are win:win for client and firm. The use of guidelines means that any conversations about disputed charges are less confrontational. Data can be used to set future fees and expectations. The relationship becomes more fact-based and strategic. Happy clients that trust their firms will stick around and direct more work their way – we are seeing this trend already with many in-house teams reducing their panels to focus on fewer, higher-value relationships instead.
Law firm invoices will be paid faster
Automated invoice review removes the need for every bill to be manually checked by a human reviewer. Those that meet the guidelines are approved automatically and so can be paid faster. We have many in-house customers who have committed to shorter payment cycles for electronic bills. This commitment is used as a gesture to their firms that they view e-billing as a process that should be win:win. Some tools, like BusyLamp, allow law firms to submit “Work in Progress” or draft invoices which can be reviewed and approved before the actual invoice is submitted. In these instances, bills can be paid even faster.
Data-driven relationships between in-house teams and firms
Much of the conversation around legal spend management data and the benefits it brings are aimed at the corporate legal department and the savings they can make by using data analysis to inform decision making. Law firms also benefit from this data; both parties can use spend data in negotiations, detailed matter information makes for more thorough reviews, and firms can offer different charging models, alternative fee agreements and fixed fees based on fact and with the confidence the pricing models are commercially viable. This also comes back to the point around corporate legal departments wanting transparency; they’ll be confident and happy that the agreed charging models are fair. Taking it a step further, by analysing spend data from multiple corporate clients, the law firm can set universal rates and prepare more accurate and competitive estimates.
Comprehension of e-billing is a value-add
Law firms should see e-billing as a marketing tool and something to offer to new and existing clients. Many law firms are very experienced in e-billing and so can advise clients on e-billing issues, best practices, and tailoring data to meet the in-house team’s needs. Prospective clients in today’s business environment will expect and require law firms to be knowledgeable about e-billing and demonstrate that they are able to offer this service when making new business pitches. In this age of “new-law”, a law firm that is able and willing to offer more than just legal advice appeals to in-house teams. A lack of e-billing understanding may hurt client acquisition efforts.
Improve law firm process efficiency
While the initial on-boarding process may have its hurdles and learning curves, over time the use of e-billing will help the law firm identify internal billing and processing inefficiencies that can then be rectified and more time can be spent on higher value work.
Reducing possible negative impactS of e-billing
Despite these benefits, the process of getting up and running with e-billing can be costly, time consuming and at times frustrating for the law firm. Here are some of the ways the corporate legal department and e-billing vendor can help reduce and eliminate negative experiences and impact.
- Some legal spend management solutions have pricing models that charge the law firm, even up to 100% of the subscription cost with no cost to the in-house team. Since the corporate legal department (rightly, so it fits their needs) gets to choose which e-billing tool to use, we think it’s unfair to then charge the firm. We also believe that if the in-house team is paying for the tool, they are more motivated to use it to its full potential, which demands collaboration with the firm and maximising the value of data that is input, so firms aren’t wasting effort entering data that won’t be used. BusyLamp doesn’t charge law firms, but ultimately it’s up to the corporate legal team which solution and pay model they select.
- Training lawyers to use new software can be a major, time-consuming challenge for law firms. One way round this is to set up dedicated e-billing teams – all the larger firms have these. If fee-earners are to use the tool, then thorough training and support from the legal spend management vendor is essential, at on-boarding and beyond. Vendors may charge different amounts for different levels of training. While “on-line help” is usually included, higher value training such as face-to-face can carry an additional fee. As it is the in-house team that would foot this bill, the corporate team needs to understand the value and importance of investing in training. However, no amount of training can rectify the frustrations that accompany a poorly designed software interface. The software buyers on the in-house side should review the user experience (UX) and interface (UI) for the law firm as well as for the corporate side as the law firm experience can be below par with some solutions. The BusyLamp interface is the same for law firms and corporate clients to ensure both sides have an equal experience. [WATCH A 3-MINUTE DEMO]
- Corporate legal teams can reduce the number of rejected invoices (and therefore law firm frustrations) by including the law firms when agreeing billing guidelines. Even if they do not, they should make them readily available and ensure the law firm understands them. If an in-house team/law firm is currently unfamiliar with billing guidelines, we recommend starting with a few vital ones as a large list from the off is more likely to cause confusion and inaccuracy. Law firms should also make a note of unexpected rejections and errors and the in-house team should be prepared and open to accepting and discussing this feedback.
- Data security is an important issue and law firms can be understandably reluctant to start uploading their information to a system they have not reviewed and selected themselves. The corporate legal department should ensure they choose a vendor with comprehensive information and data security policies (BusyLamp holds ISO/IEC 27001) including for GDPR.