Speak Our Language!
Invoicing Accuracy & Rules Compliance: What Law Firms Can Learn from Clients
Senior attorneys and managing partners are often frustrated when it comes to how they invoice, and how they are paid for their work. How can this ongoing issue with law firm management be resolved?
It is all too common for a law firm to prepare and submit an invoice, only to have it rejected by a client’s e-billing system and then ultimately adjusted downward by the client or the client’s auditor.
This shows a clear misalignment of expectations between client and law firm, one that leads to frustrations on both sides. However, as this article will explore, firms can take practical steps to address these issues, reduce frustrations on both ends and improve their financial return on the entire invoicing process.
Building a Trusting Relationship
Firms and clients need critical building blocks for a good relationship, the ones we will focus on are:
- Quality – how clients and firms may differ in how they define it;
- Compliance – how important it is to clients;
- Process – how important a firm’s process is to a client.
To understand how clients have come to define these three terms, we have to examine the history of “legal spend management” and other strategies designed to give clients more control over the costs of their law firms and the outcomes that those firms achieve.
The Four Phases
Legal cost containment strategies have evolved over time and have gone through four distinct phases: The Creation, The Great Debate, The Shift and Present Day.
The Creation – Most attorneys practicing today had not even completed law school when the legal invoice auditing industry started in the 1980s. Stuart, Maue, Mitchell & James, Law Audit Services and Legalgard were three of the first companies to build a business helping clients audit law firm invoices.
Clients liked what these companies could do for them. Each of these founding companies grew in size and revenue and did well. An important point to emphasize, though, is that many clients have more than 30 years of legal invoice auditing under their belts.
The Great Debate – By the mid-1990s, law firms had begun to push back against the rapid growth of auditing. Focusing on a central question of whether the use of third-party auditors created a waiver of privilege, firms won a significant victory in a Montana Supreme Court ruling in 2000.
The Court ruled that auditors are not part of a “privileged community” or “magic circle within which confidential information may be shared without waiver of attorney-client or work-product privilege.” The Montana decision (and a subsequent Texas State Bar Professional Ethics Committee Opinion to the same effect) meant that clients were increasingly reluctant to use auditing services.
The Shift – The Montana decision threatened the very existence of auditing companies. And so they shifted – to software. By putting software in the hands of clients to avoid the use of third parties that might jeopardize privilege, these companies could re-invent themselves and continue to service their customers.
The number of e-billing software companies proliferated. Visibillity, TyMetrix, Allegient, TrialNet, Bottomline, CSC, Examen, Serengeti, Datacert and many more emerged during this time frame. Some were former hands-on auditing companies; others were simply new software providers – all with powerful new technology designed to keep a law firm’s bill “in check.”
The Present Day – Today the legal cost containment industry is bigger than ever, but heavily consolidated, as large corporations have come in to claim their piece of the market. Wolters Kluwer has purchased both TyMetrix and Datacert; Bottomline Technologies took over both Visibillity and Allegient; Thomson bought Serengeti; LexisNexis got Examen.
Importantly for law firms, there has also been a marked and dramatic re-emergence of third-party auditing services. Realizing that the auditing software they had purchased could only do “so much,” corporate and insurance executives found the hiring of third-party legal auditors to be very attractive. We predict that auditing services will grow much faster than software in the coming years.
What Does This Mean for Law Firms?
Law firm clients can have up to 30 years of cost containment experience. They may have been using an auditing company, switched to software and then gone back to auditing. In other words, they have deep experience.
In addition, they also have very sophisticated technology. Billing rules and budgeting modules are more advanced; some companies use machine learning and fuzzy logic to spot issues with invoices. For law firms, this just means it’s harder to keep up, but with the right technology and resources, it’s possible.
The first consideration is to understand the billing language your clients are using. Those 30 years of cost containment initiatives have shaped the terminology clients apply to law firm performance. For example:
Quality – When clients speak of quality, they’re not just referring to a well-argued motion or a well-credentialed law firm. They also mean the quality of the invoice. Is it a high-quality invoice or just one that was put together using a traditional pre-bill process and commonly reduced or adjusted?
Compliance – When clients speak of compliance, they’re not just referring to how timely a status report is delivered. They are also referring to whether a firm can follow their billing rules, which are now increasingly complex. E-billing companies produce “compliance” reports for your clients, and high-adjusted firms can be considered to be both “noncompliant” and “of lower quality.”
Process – When clients speak of process, they’re also referring to a firm’s process for ensuring the delivery of a high-quality compliant legal invoice. They’re also interested in how firms describe their own practice patterns – information available to them in the invoices they are receiving.
What Can Firms Do?
All firms should remember to include the quality of their invoices in a broader conversation around law firm performance. We also recommend that firms tout their compliance levels as a reflection of high performance. Clients expect and demand quality and compliance in this arena, and firms should not avoid the conversation.
Instead, firms need to present a compelling story around their focus on invoice accuracy and the processes they use to ensure it. They should use their own invoicing data to identify performance, staffing, efficiency and outcome successes in order to build a persuasive narrative.
Here are three things firms can do to ensure they are giving their clients what they need:
- Take stock of the current situation. Identify adjustment rates by either client or timekeeper. Put the right technology in place to quantify initial adjustments, appeals effectiveness and net adjustments for both payers and timekeepers in the firm.
- Analyze how each payer differs in behavior. All clients adjust invoices differently. It’s not the e-billing software that drives this; it’s the people using the software. Perform a historical analysis of each of your highest-adjusting clients. Categorize each reduction. Assign a dollar and percentage value in the aggregate and in each category.
It is imperative that a firm understands each payer’s review process. Do you know who actually reviews your invoices? Is it the client? A centralized invoice review team? An outside auditing service?
- Improve the process. Consider getting outside help. Educating timekeepers is difficult. Firms need to really take to heart the idea that they have to do what their clients do. Audit yourselves – with experts and technology – and create an audit function. Collect and analyze all of your invoicing data. Measure the results and make being in alignment with your clients’ expectations a real requirement of your business.
Advice to Law Firms
Law firms need to make sure they are not treating invoice adjustments as a cost of doing business. When clients equate quality with invoicing compliance and process (which we know they do), this is too risky. If what you are currently doing is not working, change your process! Do not continue to do the same thing and expect different results. You need to understand the behaviors of the people using e-billing software and look at historical and ongoing adjustment data to improve your processes and, therefore, the billing outcome. With these simple and practical actions firms can address these issues, reduce frustration and improve their financial return on the entire invoicing process.