Most legal invoices still get submitted the old-fashioned way-on paper. But some corporate law departments are beginning to request that outside counsel law firms submit their bills electronically. Is electronic billing just another fad, or is it an important new trend that both law firms and law departments need to consider carefully?
Early adopters of e-billing included most of the major insurance carriers. But in the past year or so, electronic billing initiatives have moved well outside the boundaries of the repetitive or commodity legal services so often associated with insurance defense work. This movement has included major pieces of bet-the-company legal work being performed by AmLaw 100 firms, where invoices must now be submitted to the corporate client electronically.
Could e-billing be an effective strategy for your law firm? Read on and consider how you might put it to use.
How E-Billing Systems Work
Most of the e-billing vendors offer four core components to their services or systems. Here is a quick overview.
Essentially, audit capability means that the corporation can filter a law firm's bill to ensure that the invoice being submitted is correct in the following key areas:
- Arithmetic calculations are complete and accurate.
- Expense reimbursement rules are being followed.
- Outside counsel guidelines are adhered to strictly.
- Only approved timekeepers are working on the matter.
- Hourly rates reflect the agreed-on fee arrangement.
Work Flow and Routing
Once an invoice passes through the audit module, it is electronically routed to the appropriate in-house lawyers or administrative staff for review, approval and payment.
Reporting and Benchmarking
After invoices are approved, they are stored in a database. The database can then be queried for trends, analysis and metrics, and benchmarks can be applied against the data.
Integration with Other Systems
It is common to integrate e-billing systems with corporate matter management systems or corporate accounts payable systems.
What Law Firms Can Expect to Do
Law firms have to understand what they need to do to make e-billing work so they can leverage any benefits that might exist for them. You should begin by considering the following steps.
Be Set Up for LEDES Billing
Make sure your financial accounting system can produce a LEDES 2000 bill. LEDES is the industry standard data format for electronic exchange of legal invoices. Most good time and billing systems can now produce a LEDES 2000 bill.
Target Litigation Work First
By their very nature, litigation matters fall into distinct phases and tasks. This makes coding of time entries easier. The American Bar Association Section of Litigation and the American Corporate Counsel Association have defined industry standards for litigation in the Uniform Task-Based Management System (UTBMS) billing codes. Be aware that, in some instances, the corporate client may have slightly modified the UTBMS codes to meet its internal purposes.
Make Sure Coding Is Done Correctly
Expect your litigators to learn the UTBMS codes and phases. This may at first seem like an unfair expectation. But have you ever met an internist or medical specialist who didn't know precisely which codes insurance companies paid for during a doctor visit? Medical services were "codified" by insurance companies in the late 1980s and early 1990s, and every doctor knows those codes by memory.
When legal invoices are not coded correctly, they are rejected by the e-billing system. It is in the best interests of the law firm to have lawyers code their time entries correctly from the beginning. Some time and billing vendors offer time-entry screens that assist the lawyer in using the codes correctly. A few even disallow certain words or phrases in narrative descriptions for codes that don't encompass the activity that is being specified.
Request Access to Benchmark Data
Over time, the corporate purchaser of legal services will build valuable metrics and benchmarks about your law firm's performance and efficiencies. Request that information be shared with your law firm. You want to be able to see how your firm compares to others performing similar legal work. Access to this data can help you identify where there are opportunities to improve legal services delivery-and where you excel relative to the competition.
Don't Ignore Transactional Work
Transactional legal work is more difficult to codify, but it is not fully exempt. Even the ABA has had difficulty defining and agreeing on phases and tasks for transactional legal work. Therefore, industry agreement on standards has not evolved as quickly. However, certain types of transactional work-bankruptcy, real estate and immigration-are receptive to e-billing efforts owing to their repetitive nature.
Why Corporate Law Departments Appreciate E-Billing
The potential upside for corporate law departments is significant. Corporate law departments have three primary roles:
- To know the business better than outside counsel
- To alert business executives to risk and help them manage it
- To control outside counsel legal spending
It is that third role-controlling costs-that e-billing addresses and in which it can add strategic value to a law department with significant outside counsel spending. Consider the following types of benefits.
Measurements through Audit Capabilities
Paper-based legal bills have never lent themselves to quantitative analysis by in-house counsel. And third-party legal auditors have often created adversarial relationships with outside counsel firms. E-billing allows the corporation to define the degree of scrutiny applied to a firm, a lawyer, a class of cases or every case. It enables in-house counsel to measure everything from gender and racial diversity of lawyers working on a case to how a firm staffs and conducts depositions.
A Streamlined Process
Paper-based legal invoices are not only difficult to analyze, they also get lost, get photocopied much too often, take up valuable filing cabinet space and are difficult to find at a later date. The list goes on and on. With e-invoices, efficiencies are gained by reducing the paper flow and also by improving the process of paying an invoice.
E-billing vendors' marketing literature suggests that the internal cost of paying a single legal invoice ranges from $40 to $50. They claim to be able to reduce that to less than $1 per invoice. Although this is most likely an overly optimistic estimate, it is still worth noting that improving the process can result in significant internal cost reductions.
Metrics, Metrics Everywhere
As pressure from the board of directors, CEO or CFO builds on general counsel to control legal spending, metrics will only become more important to the law department. The challenge for many corporate law departments is defining valid metrics for legal services. Truth be told, not many in-house counsel even know where to begin. Requiring outside counsel to submit bills electronically is a great place to start. But it is only the first step of an ongoing process that will need constant fine-tuning.
A Chance to Prove You're Different from the Pack
While some e-billing initiatives are promoted as vehicles for "partnering" or "faster bill payment," to date few law firms have realized those types of benefits. E-billing certainly provides for closer scrutiny of outside counsel invoices, but for law firms that already adhere to agreed-on fee arrangements and billing guidelines, that is not a problem.
However, great service and high quality always get noticed. E-billing now creates the opportunity to demonstrate the value and efficiency of a law firm in a quantitative manner. That does more than give law departments a new method to evaluate outside counsel objectively. It gives law firms a new opportunity to differentiate themselves from the competition.
David G. Briscoe ( firstname.lastname@example.org) is a Senior Consultant in the Altman Weil, Inc. Technology Services Group. He specializes in strategic technology planning, acquisition and implementation.
Reprinted with permission from Report to Legal Management, published by Altman Weil, Inc. © 2002.