Sometimes corporate clients are surprised by the invoices they receive from their law firms. And it happens far too frequently.
Take US private equity (PE) firms, for example. These organisations spend an average of $10.5 million annually on outside legal fees. However, 80% of those organisations indicate they are routinely surprised by law firm invoices, according to independent research we commissioned.
Ten million dollars in legal expenses is a tidy sum. Given private equity firms manage money for profit, how is it these organisations are caught off guard by law firm invoices?
Apperio founder and CEO Nicholas d'Adhemar shared an anecdote that provides some context, from his days as an investment manager at a PE firm.
When the investment team saw a deal opportunity they wanted to pursue, they’d meet with their law firm of choice. At that meeting, they’d agree on the matter’s needs and get an estimated cost for those legal services from the law firm. Then, they’d all put their heads down and work on the deal.
As the closing approached, everyone supporting the deal would be busier and busier. And that’s usually when it occurred: the law firm would produce an invoice and say, ‘I know we told you the cost of legal services for would be $300,000 but here’s an invoice for the $1 million we booked on the clock.’
Sure, an e-billing system with a proper ruleset would likely reject that invoice, but what happens next? Both sides negotiate – sometimes with more adversarial vigour than one might prefer in a relationship business like law – and chances are the firm writes-down 10% of the invoice.
But what’s a 10% discount worth if the total sum of the work wasn’t necessary? For example, with an invoice three times the expected value, perhaps there is legal work that shouldn’t be done, or should have been done differently, or would be better served by a different law firm with a different specialty.
It would have been nice to know that was happening – when it was happening – but that’s not a capability e-billing tools can provide. These tools are quite good at what they do, but an e-billing analysis is like a photograph: the event already occurred.
A Proactive Approach to Legal Spend Management
E-billing is a part of legal spend management, and because it’s the dominant tool in the category, the terms are often used synonymously. Unfortunately, that can lead in-house lawyers to overlook other more proactive ways to manage legal costs.
One technique that’s proving results is a legal spend management platform that connects directly to a law firm’s practice management system. This provides instant visibility into both historical spend and unbilled legal work, such as work-in-progress (WIP). With current data about their budget and matters, the legal department can make better decisions driving better legal outcomes – and avoid those surprise invoices altogether.
It’s a more collaborative approach too. Where e-billing is centred on transactions and invoice rejections, a proactive approach to legal spend facilitates a discussion, about matters, performance and budget, before there’s an issue.
Similarities and Differences between E-billing and Legal Spend Management
Here are some of the similarities between e-billing and a proactive approach to legal spend management:
- Both strive to standardise legal data around budget, expenses and matters.
- Both facilitate a financial dialogue between in-house and outside counsel.
- Both foster better data hygiene around coding and narratives.
- Both encourage better time-entry among billing attorneys.
- Both are focused on managing legal budgets more efficiently.
Here are some of the differences between e-billing and a proactive approach to legal spend management:
- E-billing is a bottom-up approach where a proactive approach is top-down.
- E-billing centres on invoices where a proactive approach centres on budget.
- E-billing focuses on transactions where a proactive approach focuses on status.
- E-billing analyses historical data where a proactive approach analyses real-time data.
- E-billing facilitates invoice rejection where a proactive approach facilitates legal agility.
- E-billing tends to be adversarial where a proactive approach is collaborative.
- E-billing can take years to implement where a proactive approach takes days.
E-Billing is Valuable but Insufficient
A decade ago, e-billing tools ushered in an era of digitisation in the legal market. It is a valuable tool if you have the requisite volume of legal invoices, but it’s still retrospective. So, while e-billing can often be essential, it may be insufficient to avoid surprise invoices. Managing legal spend as it happens requires complete visibility including historical data and unbilled WIP.
See Apperio in action. The Apperio platform provides in-house legal teams with a proactive approach to legal spend management. We’ve already partnered with more than 200 global law firms to provide clients with insight into WIP. See for yourself and schedule a live demo by emailing firstname.lastname@example.org.
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Image credit: Photo by Joshua Ness on Unsplash