Taking the plunge...

Are you ready for e-billing?

Barclays recently announced the addition of ten new firms to its legal panel after completing its panel review. Great news for the law firms concerned, but new and existing clients may be a little anxious over news that the bank has partnered with US electronic invoicing provider DataCert. The goal – to give Barclays in-depth insight into its legal spend – makes sense, given the number of complex transactions it manages year to year. But this move also spells the emergence of an e-billing trend in the UK that will likely replicate the now widespread electronic invoice-management experience of the US legal market. Again, logic dictates that paper invoicing was always likely to move to an electronic format at some point, but there is something about the rise of e-billing that is stirring resistance among UK law firms. Indeed, it seems that many, if not most, UK firms are neither willing nor ready to take the plunge into that pond that would further link the UK legal industry to e-billing practices in the US.

What’s the problem?
It has become largely accepted that most business developments in the US will eventually cross the pond to become accepted practice among UK businesses. But, while US law firms have witnessed exponential growth in e-billing practices in recent years, reports have been fairly mixed on their effectiveness, or otherwise. LawNet’s ‘2004 E-Billing Survey’, for example, revealed numerous ongoing challenges, despite (or perhaps due to) a threefold increase in electronic billing over the previous 12 months. Such problems, highlighted by survey respondents, included:

Three out of four clients required the input of a billing vendor to set up and process electronic invoices. In addition, law firms were often expected to pay at least some if not an equal share of these vendor costs with their client;
For 63 per cent of respondent firms, it took between one to five hours to train staff on a new client’s or e-billing vendor’s applications. A significant 14 per cent reported spending more than ten hours in training for every new client;
Over a quarter of survey respondents (28 per cent) reported having to pay staff overtime to help with e-billing issues during busy periods such as end of year/quarter/month;
Preparing and submitting an electronic invoice was considered a time-consuming operation, taking an average of 55 minutes per invoice;
An average of 19 per cent of law-firm invoices needed to be resubmitted following client checks for compliance with its billing guidelines or business rules;
The average cost of e-billing was worked out as $68 per invoice, including initial client set-up ($11), ongoing invoice processing ($48), template maintenance ($1) and e-billing vendor fees ($8).

The survey combined these facts and figures with a long list of scathing comments on e-billing from US law-firm survey respondents, including an emotive, “I hate it! Every part of it!” and a more reasoned but equally dismissive, “The process is very time-consuming. It does not really benefit the law firm in that the time spent actually costs the firm. The whole benefit of [e-] billing is on the client’s side.”

The situation in the UK
While a 2004 survey may reveal little more than e-billing teething problems that will be rectified in the long term, UK law firms may take little comfort in the hope of learning from previous mistakes in the US market. After all, as consultant Neil Cameron says: “E-billing has always been driven from the US – it’s now going pretty much the same way here. We’re just a little bit behind.” If UK law firms can only hope for the same kind of difficulties listed above, it is hardly surprising they may now be baulking at latest developments. Indeed, a senior manager of a well-known mid-tier firm (who wished to remain anonymous) had few recommendations to pass on from his firm’s experience of e-billing so far. “There are no benefits whatsoever of e-billing for us. DataCert ran a seminar for clients – I went along and all the law firms I spoke to were saying the same thing. In-house counsel are being squeezed to justify their spend – that’s why we’ve got e-billing. I don’t even believe it’ll improve billing periods for us.”
To be fair, many of us with any experience of the legal industry will know the horror of change for most legal practitioners. Widespread disgruntlement may just be another symptom of typical law-firm restraint when it comes to modernisation. But even the UK banks that are most likely to embrace e-billing seem to be showing some reluctance. In late 2005/early 2006, HSBC started using e-billing systems – it later reported that the project was not a huge success, but that the bank would be looking at it again in the future1. Similarly, in February 2007, ABN Amro announced it would be abandoning its e-billing strategy2, saying that the cost-to-benefit ratio just didn’t add up. As with HSBC, however, it promised to review the situation later in the year. Early bank forays into electronic invoicing may have stalled, but that far from means e-billing in the UK is dead in the water.

The benefits for UK corporate counsel
Indeed, Andrew Dey, head of operations, legal and compliance for Barclays, is bullish about the possibilities of e-billing. “There are several benefits – we’ll have a much better insight into the types of work our law firms are working on; we’ll be able to compare work that was done previously, and for what cost, with the work that is being done now; and it’ll make it easier for us to compare costs between firms,” he says. “It’ll also help us budget far more effectively. We will be able to pass on far more detailed information to senior management within Barclays, which will also help us with our own legal spend.”
Ben Hawkins, head of strategic marketing, corporate legal at LexisNexis, is also quick to point to the advantages of e-billing (unsurprising considering LexisNexis offers a ‘legal spend management solution’, which not only offers an e-billing system but also claims to provide management information about the way money has been spent). However, his description of e-billing benefits for corporates is worth considering, as it does much to explain in-house counsel’s enthusiasm for electronic invoice management. They include, for example:

Process efficiency – invoice submission, review, authorisation and payment can be handled quickly, cheaply and accurately, and incorporated into existing financial- management systems seamlessly;
Paper saving – representing a dual cost/environmental benefit;
Cost savings – invoice analysis often results in savings through automated identification of errors;
Auditability – reducing the risk of misplaced or delayed invoices means that transactions can be audited more easily within financial systems;
Management information – Hawkins thinks this is the biggest benefit of legal-spend-management solutions as it allows corporate legal departments to measure, benchmark and evaluate how their external legal budget is spent. “This information can be used to initiate new processes and procedures that help corporate teams to meet their goals – for example, increasing reliance on internal legal research as a way of controlling external legal costs previously associated with the same thing,” he says.

Just as with the law firms, though, making the most of these benefits takes time and effort. “We’re still in the implementation phase with DataCert – and have not actually started using the system. Internal implementation will take a little time as we need to link it in with our other systems – for example, our e-procurement, purchase and matter-management systems. You can’t just go and get these things off the shelf,” says Dey.
Not only are such bespoke systems with extensive integration capabilities likely to incur large expense for purchasers, but tangible results will also take time to filter through. “Typical concerns among corporates looking at buying and implementing e-billing systems are based on their position as a legal department within their larger company and the impact [of that purchase] on other company-wide solutions,” says Hawkins. “The compatibility issue extends not only to wider software used within the company but also to other workflow tools such as document and matter management used in the department. Corporate customers are also concerned to minimise the impact that any new system installation would have on their panel firms.” This latter point, in particular, may even go so far as to whether a firm will be able to continue working for a client, no matter how good the service has previously been. “If the cost proves prohibitive, a law firm might remove themselves from consideration for panel work if they are unable to cope with electronic billing as required by their corporate client," says Hawkins.
Perhaps this explains why some early adopters of e-billing have since pulled out, to review the case for e-billing in future months. But there is also an added challenge of implementing e-billing processes in a complex European market. “The US has taken the lead in e-billing like it does in so many areas,” Hawkins says. “But it has been harder to introduce e-billing into European operations as the market presents different challenges. The major factor here is the cross-jurisdictional nature of transactions, meaning that European companies are spending a higher proportion of their external legal budgets on foreign jurisdictional work in other currencies.” He adds an important caveat, however: “The European market has the potential to lead the US in the future due to its size and potential increased competency by having addressed these challenges.”

Standards, standards, and yet more standards
While there may be a huge potential for e-billing in the UK and Europe, there also appears to be a fair few obstacles to success, not only with ingrained reluctance from law firms to meeting e-billing requirements, but also with law firms’ and corporates’ ability to implement a system fitting for a European market and specific UK requirements (for example, VAT). In the US, much work has been done to agree standards that have undoubtedly helped spread e-billing. But take a look at the US standards and how they are being conveyed to the UK, and there are both positive and negative signs for the future.
Although there are several standards/formats for billing in the US, the Legal Electronic Data Exchange Standard (LEDES) looks to be dominating the field. The LEDES oversight committee (LOC) has roots going back to 1995, when PricewaterhouseCoopers LLP convened a consortium of legal-industry, time-and-billing-system, and case-management-system vendors to define a standard electronic-billing format for use by the legal industry. Since then, LEDES standards and revisions to LEDES standards have followed in quick succession:

In 1998, the LEDES 1998 format was agreed, based on a framework established in 1995;
In 1999, as new modified LEDES 1998B format replaced the 1998 format and became the accepted form of e-billing;
In 2000, however, LOC ratified another e-billing standard, named LEDES 2000, which contained more information and ‘accommodated the more complex fee arrangements between law firms and corporations’;
The LEDES 2000 format was further revised (with ‘minor corrections’) in 2004 and 2005;
This format was then again completely revised in 2006, with the launch of LEDES XML E-billing Ver.2 format3.

Reading this list of year-on-year amendments/revisions, it hardly seems surprising that some US law firms, quoted in the LawNet 2004 e-billing survey, said: “Standards should not be altered!” or “Varying formats and the cost make e-billing an on-going problem for law firms.” The survey also revealed that corporate clients required firms to send their invoices in a number of electronic formats, including LEDES. As many as 31 per cent of respondents claimed to be using three or more completely different formats to bill clients, and that wasn’t including individual client modifications within those formats. For example, 40 per cent of respondents were using one to three format variations. You would be forgiven for thinking this all sounds a little like wheels within wheels...
And, of course, this is before we look at developing standards in the UK. At least Neil Cameron appears prepared for the worst. “The problem with standards is that there are always too many of them,” he says. “The burden is greater than it needs to be because there are so many different ways of doing it.”
To give a potted history, in 2004, the UK-based Legal IT Innovators Group (LITIG) developed an e-billing standard for the UK legal-service industry, based on the US LEDES 1998B format. This format was revised in 2006 to enable international billing, ‘until such time as the LEDES XML Ebilling Ver.2 format becomes available to law firms’4. However, this LEDES 1998B-International format will not be further modified. Instead, further revisions will only be considered for the LEDES XML Ebilling Ver. 2 format. We must suppose, therefore, that this latter format will supersede the 1998B format in due course.
In addition, we have possible Uniform Task-Based Management System (UTMBS) codes to consider. This codification system is quite widely used in the US and requires UTMBS task and activity codes to be included on every time entry on a electronic bill. Although not yet common in the UK, their promise of offering clients the ability to compare costs of legal work across multiple firms, may yet prove alluring. That’ll mean fee earners (and accounts staff) having to find the right codes and add more information to each bill; where management already struggle to get fee earners to comply to various working-process requirements, this may prove yet another bugbear.
Just as in the US, it seems that standards should help, but numerous updates, new formats and possible codifications may also do the opposite – further confusing the market and reinforcing a groundswell of opposition.

So why are we bothering?
There is much negativity around e-billing systems in the UK, some of it borne out by US experiences, the rest stemming from logistical confusion as to how this can develop smoothly in the UK market, without costing huge amounts of time and money. But the fact is that e-billing is unlikely to go away because of the huge potential benefits, particularly for large corporates. In the long term, firms are going to have to embrace the change, if they want to retain such clients, and progress.
There are, thankfully, some positive signs for the future. Barclays Andrew Dey is determined to work with law-firm clients and with LITIG to ensure a smooth transition to electronic invoice management. “We are working with LITIG to ensure that all standards are universal,” he says. “We don’t want law firms to have to work to different standards for different clients.”
And although there is much scepticism about whether e-billing will really speed up payments to law-firm clients, there is a real underlying benefit that firms might not yet appreciate. “You should be able to build your client’s e-billing system into your own firm’s systems producing ties between your clients’ and your own billing, client and matter-management systems,” says Cameron. “That’ll ultimately mean that it will be more difficult for your clients to take their business elsewhere. After all, clients are as lazy as anybody else – uprooting all these integrated systems to move to another law firm will not be terribly attractive for most companies.”
There is clearly an awful lot more work to be done on e-billing in the UK before we can assess whether it’s a success, or not. We haven’t even yet touched on how firms will convince fee earners to buy into this billing process, which may yet prove the biggest obstacle of all. But even those opposing e-billing developments seem somehow resigned to the fact that client demands for e-billing will grow. Facing up to the inevitable with a positive and proactive attitude may mean working closely with clients now to ensure the systems and the processes they choose work for your legal business. Aligning your needs with those of your clients may also be the only way to turn current concerns into optimism for a more streamlined and productive future. You never know, with the right preparation, perhaps one day, everybody will be happy to take the plunge.

A law-firm perspective on e-billing: DLA Piper

Tell me a little more about your role at DLA Piper and your involvement so far in your firm’s e-billing strategy?
As the manager of client accounting services, I am responsible to the European finance director for the service delivery of the cashiering and credit-control teams across the UK.
The development of our e-billing expertise has been an important element of the firm’s overall billing strategy, which is currently being reviewed as we move towards a new practice-management system (PMS).

What changes have you seen in the way your UK clients are managing their bills?
There has been a significant increase in the number of clients who now require far more detailed breakdowns and analysis in relation to both time and disbursements as legal spend management continues to gain momentum. In addition to US companies looking to reap the benefits across their European subsidiaries, it is clear that UK and mainland European companies are taking a serious interest in employing third parties to analyse their legal spend. As a result, our UK and European offices are receiving an increasing number of enquiries as to the logistics of putting such an arrangement in place.

How have you so far responded to those demands and what further changes to your billing processes/systems do you foresee in the months/years ahead?
Currently our development team are dealing with the issue by way of bespoke processes tailored to both our clients’ needs and the data format required of their third-party supplier. While this has been challenging, it has ensured we have developed the in-depth expertise to be able to react to new implementations swiftly and more effectively.
An added advantage is that this experience allowed us to shape the functionality and processes required of our new PMS early on. As the system will make the data-formatting process much easier it will allow us to consolidate our current approach to e-billing across locations into a dedicated team and allow us to explore new ways of enhancing our delivery.

What are the chief difficulties you face as you move into this new e-billing environment?
Primarily, the biggest challenge, regardless of the functionality you have in place is ensuring the underlying data conforms exactly to the rigid requirements e-billing imposes. The slightest deviation can result in a delay in payment, which previously may have been resolved much more quickly and informally. Subsequently, this can have an impact when analysing average payment days, for example.
Educating the business is, of course, key as is the introduction of an audit process to closely monitor submissions that are rejected and take remedial action as necessary.

What benefits do you hope to gain from e-billing developments, particularly in terms of your clients?
An important part of the relationship is to ensure we play our part in supporting our clients’ own strategies. By developing our expertise and investing in the technology previously mentioned we are able to better service their billing and reporting requirements.
In return, firms can expect benefits in cash flow as the payment terms for bills submitted electronically are usually reduced. There is also significant potential for streamlining billing processes.

What are your views on the current work being done to develop a universal standard (for example, LITIG’s new data standard) for e-billing? How far do you see this supporting your long-term e-billing strategy?
The benefits in relation to implementation and the savings in time and money to both law firms and clients is obvious and should allow firms not undertaking e-billing at present to be more receptive. It will certainly ease the passage of our long-term strategy, and would make training and system support less cumbersome.

How do you see the billing landscape developing? For example, do you see us following the US model?
I think there is still an initial reluctance in some UK companies to commit at present as the potential benefits have to be weighed against the cost of implementation. Third-party suppliers, however, are actively targeting these companies and I suspect, therefore, that there are a significant number of UK companies keeping a close eye on how large, domestic implementations fare. Personally I would have thought it only a matter of time before we see rapid growth. The banking sector is certainly showing an increasing interest in e-billing.

References:

1. Corporate Counsel. Control, alt, bill’, by Michelle Madsen and published by Legal Week, 19 July 2007;
2. ‘ABN Amro ditches e-billing plan’, The Lawyer, 26 February 2007;
3. See www.ledes.org for further info;
4. As above.