Electronic billing can be controversial, rewarding, complicated, and expensive. Its promoters believe its benefits far outweigh its detriments. Those less sanguine cite increased processing difficulties and added expense. Considering the mixed reactions to electronic billing, why are, according to one survey, approximately 28 percent of corporate law offices considering the new process?
For starters, the number of corporate law offices currently using electronic billing, or e-billing, is relatively small but growing. One recent survey conducted by Serengeti, a matter-management and e-billing vendor, and the American Corporate Counsel Association (ACCA) found that only 10 percent of all law offices currently use some form of e-billing. However, that same survey found that approximately 28 percent were considering the relatively new process.
Today's technology infrastructure has never been better suited to support e-billing. More and more law departments and law firms are implementing and using a wide variety of Web-based applications. There are several Web-based matter-management applications currently on the market. And vendors like Serengeti, Tripoint Systems, eVelocity, TyMetrix, Elite, and Datacert are offering law departments and outside law offices a variety of electronic billing solutions. Coupled with the rise in legal extranet activity—or Web-based applications that enable corporate law offices to have sophisticated, complex connectivity with the outside counsel who support them—the time is ripe for e-billing solutions.
What is E-billing?
Prior to the last decade, all legal billing was done via paper. The outside lawyer would track his/her time against a particular legal project or matter. Once a month, the law firm would generate an invoice by totaling the number of hours worked on a particular matter and multiplying that number by the proper rate.
While the overall process was simple, it could also become very complicated. Say, for instance, the law firm has multiple attorneys working on multiple matters for multiple in-house attorneys at one particular company. Once a month, an invoice is generated with multiple billings. When the company receives that invoice (if there is only one), it has to be reviewed against the project for which the work was done. Consider, too, that the law firm uses an electronic timekeeping and billing application with a completely different type of numbering system to track a company's matters.
All of the preceding is done via paper, so the entire process has to be hand hustled through the system. And what if there are questions and/or adjustments? The manual process of managing invoices, budgets, and related financial matters also leaves companies with sparse reporting and financial-review capabilities. Using the preceding process, a general counsel would be hard-pressed to tell his/her senior management how much money was being spent on intellectual property, litigation, personal injury, internationally, or with firms A and B. When using manual, paper-based systems, the fine points of the in-house legal budget are difficult to conjure.
Seeking a better way, many corporate law offices turned to matter-management applications that tracked all sorts of information—including financial—regarding their open and closed legal matters. But in the past, financial information for these matters had to be entered electronically, often after the bills were paid and shepherded through a company's accounts payable process.
In an effort to improve the process, Price Waterhouse Coopers, ACCA, and the ABA created LEDES, or the Legal Electronic Data Exchange system, in 1998. For the first time, law offices had a common billing format they could use to both submit and process their invoices, paving the way for a more standardized billing process.
Not all law offices follow or use the LEDES format. However, because an increasing number of corporate law offices are starting to migrate toward an e-billing process, the LEDES format is gaining ground.
All of the preceding means that in 2005, approximately 10 percent of all law departments are using an electronic-billing process. In practice, that means individual invoices can be generated by law offices in much the same way they were previously generated. However, by using standard billing formats like LEDES, outside counsel can indicate both the matter and type of legal work being performed. That e-invoice can then be electronically transmitted to the client. In a completely integrated, automated process, the client then routes the electronic invoice through its system, the bill is reviewed electronically, approved electronically, could be paid electronically, and—in the ideal system—the amount is automatically added to a matter management system. In instances in which problems arise, they can also be easily and quickly handled—electronically.
Why do corporate law departments like e-billing?
In today's increasingly litigious business environment, senior management must keep tabs on its legal budget and potential legal exposure. Executives turn toward their general counsel for that kind of information. Ideally, they expect the information to be current, complete, and provided in whatever format and with whatever analyses they desire. For instance, the board of directors might enquire about the overall legal costs of the company's intellectual property (IP). They want to know what portion of the IP legal budget is being spent on litigation, trademark work, patents, and related governmental filings. They want to know how much was spent on IP in the most current month and what's budgeted for next month. They might also like to know which outside firms and lawyers are their largest IP legal vendors and how much each has been paid.
Corporate law departments like e-billing because it enables them to accept, process, review, approve, and update their matter-management information in a timely, complete, and thorough manner. Armed with a complete, automated, and electronic process, they can respond to their managements' requests in a timely, thorough manner. Surveys of law departments that are currently using e-billing systems also report a 5- to 15-percent savings in overall legal costs—due to better audit and analysis procedures and related improvements.
Why are some law firms quietly reluctant?
Outside law firms are sometime reluctant to participate in e-billing because of the cost and difficulty involved with altering their in-house billing systems. In some instances, completely changing a system to one that works with whatever one client requests simply doesn't make good business sense. While standards like LEDES are making accommodations to existing billing systems easier, system changeovers can be difficult. Also, some third-party e-billing solutions will charge law firms a processing fee—adding to the firm's cost of doing business.
In spite of the preceding, there are several good reasons why the e-billing process can also be beneficial to law firms. First and foremost, electronic billing is electronic. Manual mailing, routing, and review of paper invoices simply cannot compare with the speed of light. The e-billing process happens over wires, via Web-based extranets, so all the relevant players have access to the billing information. That means invoices are routed, reviewed, approved, and forwarded for payment days before the old manual process even gets started. The all-parties electronic review process also translates into a much more rapid surfacing of billing issues, which can also be addressed in a timelier manner. As a part of the electronic invoicing process, billing information is also used to update a corporate law department's matter-management system. Enhanced corporate law department financial information means outside firms should theoretically receive fewer requests for financial reports, dollar comparisons, summaries, and the like. And perhaps most important of all, the expedited process can result in law firms' getting paid must faster than in the halcyon days, when everything was done using paper.
For Companies Contemplating E-Billing, What's the Return on Investment?
If 28 percent of corporate law departments are, according to the Serengeti/ACCA survey, considering implementing e-billing, what can they expect to pay, and what can they expect as a return on their investment? According to survey respondents, most realized anywhere from a 5- to 15-percent cost savings as a result of the e-billing process. An approximate cost of implementing e-billing for a small company with a $1-million legal budget is $24,000 per year. If, as a result of savings incurred through the electronic billing process, the company is realizing a 5-percent savings, in the case of the small company, that would translate into savings of approximately $50,000 per year. Based on those figures, the small company could conceivably realize a 200-percent return on its investment.
For corporate law offices that have contemplated using electronic billing in the past, now may be the time for a closer look.
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