Advances in e-billing

Law firms can derive internal benefits from an e-billing investment, as well as offering clients greater cost transparency.

By Bryan King

More and more clients are asking law firms to render their bills electronically, but although very widespread in the US, legal e-billing did not take off in the UK until relatively recently. For example, it is estimated that in 2006 over $18bn worth of legal bills were processed electronically in the US and that over 85 per cent of all litigation work is now e-billed.

However, things are now changing in the UK, and in the past year or so we know some significant e-billing projects have been undertaken in the UK and that a number of law firms are now e-billing their largest clients to the value of many millions of pounds per year.

In a recent survey of general counsel from leading UK companies carried out by PLC, almost 60 per cent of in-house lawyers said they wanted to be able to see their bills electronically. This compares with a figure of fewer than 10 per cent of counsel who are currently able to receive billing data directly from their law firms.

For several years the advantages of e-billing have been very much a one-way street in the client’s direction, however, and many law firms have seen e-billing as something that they ‘have to do’ but with few benefits for the firm itself.

Benefits for clients

The main benefit from the client’s perspective is that if all their law firms are using the LEDES standards, as well as the UTBMS codes on their e-bills (see definition boxes), this allows large volumes of detailed billing information to be initially validated, analysed and compared by the client, in order to better understand their legal ‘spend’. This detailed work breakdown, as well as the lawyers’ time narratives/notes, are included on an e-bill, and thus, the firm is exposing much more of a firm’s internal data to its clients.

Further benefits claimed for e-billing are that it reduces erroneous charges, enforces compliance with
the billing guidelines, and ensures that the seniority and charging rates of lawyers working on a matter are known to the client. Some clients rigorously enforce their billing rules, and e-billing does provide a way for these rules to be more strictly applied than with paper-only bills. While this strict compliance with the rules is more prevalent in the US, it is also a possibility that we could be seeing more rigour being brought to bear in the enforcement of what can (and cannot) appear on legal bills in
the UK.

Typical billing restrictions of this nature are that clients will not pay for any copy costs, telecom charges, administrative overheads and online research. In the US some further examples of counsel guidelines are:

That law firms should use appropriate resources for performing certain tasks (such as partner time not being used on what are considered ‘junior’ level tasks/activities;
That the client will only pay for time spent travelling if that time was productive (i.e. the lawyer worked while he/she was travelling);
That clients can specify only one external firm lawyer should attend certain types of meeting,
and will be able to verify that this happens.

Issues for law firms

To date, the drivers of the e-billing market in the UK have thus been the e-billing vendors and corporate legal departments, while law firms have tended to be on the back foot when responding to
such requests. The question often asked is: what’s in it for the law firm, especially in the current climate? Can law firms actually use or exploit e-billing to their advantage?

In the UK there have been some significant barriers to the adoption of e-billing (mainly financial, cultural and statutory/regulatory concerns), and many UK law firms have had to overcome these and answer a number of questions in order to successfully implement e-billing in their organisations.

Financial barriers have included set up costs, system costs and the resources required to run e-billing. For example, do law firms have to re-organise their internal billing teams in order to accommodate e-billing? Have they got the right processes in place to capture the client’s matter information for putting on e-bills?
Are they able to upload clients’ bills into the intermediary system and deal with the rejections and queries in a timely manner? Are practice management systems (PMSs) able to produce the correct matter and timekeeper lists for uploading to the intermediary or client e-billing systems? How do they manage the complexity of maintaining the different e-bill formats required?

Cultural issues include how firms ensure that lawyers are entering the correct ‘Task’ and ‘Activity’ codes when recording time. Are time narratives being entered correctly bearing in mind they are visible to the client? Are e-bills compliant with the client’s (often complex) billing and submission guidelines?

Finally, there are statutory/regulatory concerns in the UK that are not present in the US. Are e-bills compliant with the various tax rules, regulatory bodies and other legislation? In the UK many firms produce both a legal ‘bill’ and a separate tax invoice. If the e-bill is to replicate both documents, these statutory/regulatory issues have to be satisfied. Firms have to ensure their e-bills and other information
sent to clients and intermediaries complies with, among others, the requirements of the Solicitors Regulation Authority (SRA), HM Revenue & Customs, Data Protection laws, the Business Names Act and EU billing regulations. Firms should also ensure that the e-billing intermediary system handles these issues correctly and that the e-bill as seen by the client complies with all
the appropriate regulations.

Benefits for law firms

Recently, however, UK law firms have started to overcome these barriers and are also beginning to realise the benefits of e-billing.

The obvious tangible benefits are that law firms should get their invoices paid quicker, because of
faster authorisation and payment processes at the client. Also, as bills are validated before being submitted to a client’s e-billing system and can be checked for compliance with the client’s billing guidelines before being finalised, there should be fewer subsequent disputes over payment.

There are, however, further indirect benefits law firms are gaining from e-billing in terms of establishing closer working relationships with clients and seeing opportunities to tie-in their corporate lawyers on a longer-term basis. Examples of these types of benefits are:

Law firms are able to offer more access to internal data not normally available to the client; for example, written-off/unbilled time and non-chargeable work done for the client. Firms are also able to categorise billed time by the client’s own work breakdown/cost codes and improve the value to the client of the information in the e-bill. All in all, it means that more comprehensive information about each matter is available to both law firm and client, and this is shown to improve the quality of the discussions at relationship meetings, for example;
Law firms should see e-billing as a marketing tool and something to offer to new and existing clients. Many law firms are very experienced in e-billing and are able to advise on e-billing issues and even on how billing data can be tailored to best meet the client’s needs. Prospective clients now require law firms to be knowledgeable about e-billing and demonstrate that they are able to offer this service when making new business pitches;
The use of 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. An example of this is where part of a matter is priced according to time-based billing and part is fixed-fee work. This type of costing can only really be achieved if both parties are comfortable with the work being done and
the stage of transaction. E-billing is the only way that this level of work breakdown can be measured and made visible to both parties.

There are also internal benefits that law firms can gain from e-billing themselves, and finance managers should not underestimate the use they will be able to make of the additional information being
collected in order to meet the needs of e-billing. Detailed information of the law firm’s billing practices will be collected in order to produce e-bills, and this data can then be analysed internally by the firm in order to compare department to department and office to office. For example, the use of the UTMBS codes to record ‘phases’, ‘tasks’ and ‘activities’ in a matter can be used in this way, and this is not normally a view available to internal law firm management.

E-billing also enforces more consistent billing and time-recording practices, which again the law firm should be able to benefit from internally. As time narratives, correct coding and compliance with a client’s billing rules all have to be accurate for e-billing, this will enforce better billing practices in the front office.

Finally, some e-billing systems have a feature to give law firms visibility of their invoices as they progress through the client’s systems. With the client’s permission, this will allow a view of the status of unpaid invoices within the client’s own authorisation and payment process. The e-billing vendors are also providing various billing statistics; for example, why invoices are rejected by the validation software or how long invoices are taking to be cleared for payment. These billing reports should provide the law firm billing teams with a valuable source of information and enable them to continuously improve the quality of e-bills produced and lead to a reduction in the level of rejected bills.

Threat or opportunity?

E-billing has been described as both a threat and an opportunity for law firms. Some individuals see
this new transparency in the billing process as a threat. No doubt there are risks that a law firm must manage, as more detailed billing data is exposed to the client in a format that can easily be analysed and compared with data from competing law firms. Also, as the narratives associated with each time line are part of the e-bill, lawyers need to ensure any confidential information is coded or masked, as it may now be visible to a wider audience.

On the other hand, firms can also see e-billing as an opportunity to enhance the client relationship, and it gives law firms an opportunity to work closely with the client on providing added value, over and above the delivery of legal services.

New approaches

As with many business processes there is no single or correct way to provide electronic invoicing and there are many different approaches that firms have taken.

In many firms e-billing is still a manual operation, seen as ‘something different’. These firms have not really understood or begun to overcome some of the issues that need to be addressed. This approach will lead to a high level of resources being required and much manual intervention in the production of e-bills. Certainly, firms in this position will find e-billing a high-cost process and will not see many benefits.

However, as a contrast, in a number of other law firms, e-billing is now fully integrated into the
normal billing routines, which means there is less manual intervention, and therefore the costs associated with e-billing are lower. Ideally in these firms there will be validation of time recorded,
codes, narratives, rates, timekeepers and expenses earlier in the billing process; e-bill production will be integrated into the firm’s time and billing system; and there will be checks for compliance with client billing rules before the bill is finalised. These law firms are now much more on the front foot, have well defined processes for the take-on of new e-billing clients, have support for e-billing in client/matter inception and time-recording systems; and their lawyers, secretaries and back-office staff are comfortable with e-billing requirements and processes.

However, it is not necessarily the large City-based law firms that have led the way in e-billing. In the UK, successful e-billing implementations have taken place in a number of smaller niche firms as well, while at least one regional firm is now e-billing over 30 of its largest clients. The key success factor that marks out these firms is their ability to integrate e-billing into their normal business routines. These firms have changed their internal processes to support the move, have trained all their staff in what is needed to make e-billing work, and made key changes to their systems to support the technical requirements.

They are now able to deliver e-bills to their clients in a cost-effective and efficient manner, with a low percentage of billing errors, and are now sharing the benefits of e-billing with their clients.

Bryan King was the IT development manager at Linklaters from 1985 to 1994, then moving to Lovells, before joining Clifford Chance in 1996 where he held a number of senior system roles, including global responsibility for e-billing projects from 2004. Since January 2008 he has worked as an independent e-billing consultant. He can be contacted at: bryan10king@btinternet.com.