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posted 28 Oct 2009 in Volume 4 Issue 1

Despite regular, albeit infrequent, discussions about the pros and cons of e-billing over the past few years, it is a business practice that has yet to be established on a broad basis in UK law firms.

The recent announcement, however, that Barclays Bank will roll out an e-billing system across all of its panels indicates that a process that UK firms have been reluctant to embrace is slowly gaining momentum in our region. In that context, it proves useful to look at some of the experiences US law firms have made since electronic billing became a legal-industry trend in North America in the 1990s.

The benefits and advantages for law firms, including less work for billing teams, an expedited invoice approval process leading to faster payment, and greater information transparency are real. The issue is that they are only a fraction of what law firm clients and e-billing vendors suggest. The reason? E-billing vendors make those assertions under the assumption that a law firm only has to deal with one corporate e-billing system, that all law firm clients require the exact same data elements in their bills and that they all use the same validation process for information contained in those data elements. In reality, law firms have not gained the same process and informational advantages from electronic billing as their in-house counterparts, so the idea that law firms will recoup their extra effort and expense when their invoices are paid faster has also not yet come to pass.

Added process burden

For many corporate law departments, much of the value in their e-billing systems is the ability to automatically analyse invoices for compliance with the company’s outside counsel guidelines. As a result, a fair percentage of invoices are automatically rejected and returned to the law firm for revision. Some e-billing applications handle this better than others. Still, for a firm that creates and sends hundreds or thousands of electronic bills each month, keeping track of these rejections can be a time-consuming and expensive proposition. Since, typically, law firms deal with several different e-billing systems, even with a relatively low volume of e-bills, invoices are often tracked using spreadsheets
where information is entered manually. The reasons for invoice rejection, again, are displayed for each system separately adding to the work load of checking and tracking e-bills manually.

The resulting lack of transparency has a substantial financial impact on the firm, largely in terms of the speed of collection (and the time-value of this money) and the firm’s realisation and write-off rates.

Cost of e-billing

With additional processes come additional costs that can amount to a substantial expense even at a low volume of e-bills each month. Based on information gathered by ADERANT’s e-billing partner from interviews and cost analyses across a large number of US law firms, a firm with only 200 e-bills per month will spend around 13 per cent of the revenue contained in those bills on the e-billing process itself. This includes: costs for creating, validating, submitting and tracking e-bills – over half of the added expense; costs of e-billing on a firms ‘diary to cash cycle’; costs of e-billing related to write-offs; and, other expenses for training, maintenance and support.

Why do it?

The answer to this question is simple – because clients want it. The percentage of US corporate legal departments using e-billing solutions has grown from 22 per cent in 2007 to 38 per cent in 2008 and projections estimate this number to reach around 50 per cent by the end of 2009. More interestingly, despite the small number of corporate legal departments that make electronic billing mandatory for their panel firms, these clients represent a disproportionately large amount of revenue for their outside counsel. This has been confirmed in a survey on e-billing, conducted by ILTA (International Legal Technology Association) in the US in December 2008.

In tough economic times, legal services budgets are under scrutiny like any other expense, and the increased insight into the work law firms deliver makes e-billing an attractive proposition for legal departments. The detailed breakdown of bill components makes the cost and delivery of legal advice more transparent and comparable across different law firms, and companies in the UK are likely to follow the example of the US market with an increased adoption of e-billing in the next years.

Law firms should start the thought process on e-billing early on and avoid coming under pressure by their top clients. Is it for example more efficient to move towards centralised billing? Investigate whether the current practice management system supports the electronic billing process or functionality needs to be extended. Solutions available to law firms today, for example, include applications that provide one central interface to disparate e-billing systems and help reduce a lot of the administrative burden. Ultimately, the ability to meet clients’ process requirements and ensuring that work is not only delivered but also invoiced efficiently will form an important part of the client relationship management in challenging economic conditions.