E-billing can save in-house legal units money
E-billing can deliver cost savings and a lot more detail on billing – two things in-house counsel should find very attractive in 2009.
While electronic invoicing (e-billing) is beginning to make an impact in the commercial relationship between a growing number of UK corporate legal departments and their external law firm advisers, a large number of organisations are still not yet reaping the benefits that e-billing can bring. Indeed, it has recently been said that many UK legal departments still don’t ‘get it’ as far as e-billing is concerned.
There is no doubt that, in the US, clients have been ‘getting it’ for many years, and the size of the US e-billing market is a testament to this. Compared with the US, here in the UK we are not yet anywhere close to this, but the signs are that there is a growing interest in, and understanding of, the possibilities of this new billing process.
In a survey of general counsel from leading companies by PLC in September 2007, entitled Using technology to reengineer the legal department best practice, more than 50% of in-house lawyers wanted to be able to see their bills electronically, compared with a figure of fewer than one in 10 of counsel who were able to view billing data directly on their law firm’s websites.
Furthermore, one industry expert has predicted that, given the current growth of e-billing, within five years at least half of all corporate law departments in the UK will be using this technology. Recent press releases have shown that there are some significant e-billing projects underway and that a number of law firms are now e-billing some of their largest clients to the value of many millions of pounds a year.
Gaining control
What, then, is the driver for legal e-billing, and what returns are corporate legal departments expecting e-billing to deliver for them?
Some of the often-claimed benefits are:
- What in-house counsel want from their external advisers is clarity, consistency and transparency in the billing process and e-billing is the only way to deliver this;
- E-billing enforces compliance with a client’s billing rules and agreed fee rates, and ensures that bills are mathematically correct, and that only those disbursements allowed are billed;
- E-billing enables in-house counsel to analyse billing data in detail, improves management information and assists in the legal spend budget process;
- E-billing allows counsel to know exactly what their external firms are working on and that the appropriate firms are being instructed for the most suitable work;
- E-billing will reduce the paper trail of bills within a client’s organisation and will improve the processes for invoice approval and payment.
Given that e-billing is still in its relative infancy in the UK, there is not a large amount of data that can show whether these benefits have been realised, but from some case studies in the US it would appear that it is certainly possible. Suzanne Hawkins, the former senior counsel of General Electric, said that e-billing in its first year of use at GE saved the company over $1m in legal spend, and that any in-house legal department should be able to save more than 15% of its costs on picking up incorrectly charged disbursements and unnecessary time entries. Likewise, Microsoft deputy general counsel Kevin Harrang has said that e-billing helped Microsoft reduce legal costs by $2m annually.
Another US survey showed that 10 out of 15 corporate legal departments claimed to have recovered their investment in e-billing within the first 12 months of operation.
What is clear from the US experience is that the improved quality of data that e-billing brings to the in-house lawyer, and the ability to analyse legal spend across law firms, allows a much more informed discussion to take place with outside counsel.
While straight cost reduction may be the primary driver in the US, several UK organisations have realised that other benefits can accrue from e-billing.
One of the most high-profile e-billing projects currently underway in the UK is that being run by Barclays. Andrew Dey, head of operations at Barclays Legal, has said: ‘We believe e-billing will make our in-house lawyers think more commercially. Are we putting the right resources on matters? What’s the selection process? We would hope over time that it has a positive behavioural [impact].’
Barclays maintains that e-billing is not just about cutting costs and fees but part of a much wider strategic relationship with its external firms.
Another UK-based company to embrace e-billing is Thomas Miller, the transport insurance specialist. Director of service Mark Holford was quoted as saying that one of the motivators for a move to e-billing was to cut his law firm panel from around 60 firms to between five and 12.
Shared benefits
As we have seen, there are real benefits to be gained by in-house legal departments from a move to e-billing, but of course we have also got to ask: ‘What’s in it for the law firm?’
Apart from the obvious benefit that law firms should get paid more speedily, e-billing does bring more clarity to the billing relationship. For example, the fact that the billing rules can be enforced before the bill is finalised brings a degree of certainty to the law firm that any bill it produces should not be rejected by the client.
Less obviously, e-billing can facilitate a fresh dialogue between law firm and client about the pricing of legal work and the use of more flexible cost models, such as where part of a deal is time-based billing and part is fixed-fee. This type of costing can only really be achieved if both parties are comfortable with the work being done and at what stage of a transaction it is done. E-billing is the only way that this level of work breakdown can be measured and made visible to both parties.
What is e-billing?
E-billing is not, as many think, the uploading of an electronic copy of a bill to an external website or e-mailing the client a PDF image of a bill.
Put simply, true e-billing involves a secure and encrypted data file being produced from a law firm’s time and billing system, which is a rendition of the legal bill and VAT invoice. This e-bill incorporates all the information normally on the paper bill, but uses recognised standard codes to define the work being undertaken and the expenses incurred. The e-bill passes various levels of validation before being uploaded to the client’s systems where it is finally authorised and paid. The client’s legal team is then able to use specialist software to analyse all aspects of the billing data and compare like-with-like information across all external advisers submitting e-bills.
Recent implementation of key legislation in the Legal Services Act removes the requirement for law firms to produce a paper bill, thus overcoming one of the main obstacles to full e-billing in the UK.
Strategic systems v legal spend management
One issue for many UK corporate legal departments that does not seem to have arisen in the US is that some organisations have taken a strategic decision to automate their entire supplier payments process and are using one of the generalised accounts payable management system providers, such as Ariba or OB10. While this is seen as streamlining the processing of all invoices for an organisation’s purchases, these systems do not give the in-house legal function the benefits of ‘spend management’ that true legal e-billing delivers.
However, there are ways an organisation’s legal team can fit in with the corporate strategic procurement system, and still have their legal bills processed and available for analysis via one of the dedicated legal e-billing systems. Some in-house teams have succeeded in incorporating e-billing within the wider strategic platform and have demonstrated that implementing legal spend management does not require extensive use of central IT or management resources.
Bryan King is an independent legal e-billing consultant. He previously worked for major law firms such as Linklaters, Lovells and Clifford Chance, including nine years as IT development manager at Linklaters and 12 years at Clifford Chance, holding a number of senior system roles, including global responsibility for e-billing projects
