What Is Electronic Billing?
Many in-house legal departments are doing away with paper legal bills. Rather than receive paper invoices, they're requiring that invoices be submitted via email or web page. Several file formats are currently in use. The most common is LEDES98b.
Legal Electronic Data Exchange Standard (LEDES) formats were developed by PriceWaterhouseCoopers to provide a standard format for use by the legal industry. The format is currently monitored by the LEDES Oversight Committee, a voluntary body representing in-house legal departments, software vendors and law firms. The LEDES format is intended to be an open standard that doesn't favor one particular type of entity.
Most law firm time and billing software can accommodate the conversion of a standard legal invoice to a LEDES file. Unlike simple Word or pdf attachments, LEDES files contain data in a pipe ("|") delimited ASCII text file. The data is uploaded through a third party system where invoices can be viewed on a computer monitor.
What Steps Are Required To Set This Up?
The in-house legal departments normally initiate the process. Most go through third party clearing houses, although some maintain their own systems in house. There are several vendors in the market.
At the start of the arrangement, the third party will normally send the law firm a set of electronic submission guidelines. This document will spell out the specific client requirements and provide a guide to how each field in the LEDES file should be populated.
The in-house counsel or third party then notifies the law firm that invoices will be submitted electronically. Normally the notification will include a timeline for testing, live invoice submission and, finally, an announcement that that they will no longer accept invoices on paper.
Several key bits of information will need to be communicated. Most e-billing systems require the law firm to reference the client's internal matter number on the invoice file. This number should be communicated at the start of the engagement. This number is crucial as most third party vendors will not accept invoice submissions without it. Tracking down this number at a later date can be problematic. Some third party vendors allow the law firm to obtain the matter number online. Some require law firms to contact the individual in house that assigns the work. At our firm, we use an Event Driven Reporting system which notifies our attorneys when the number is not present.
What Types Of Systems Are There And What Do They Cost?
The various systems range from a plain vanilla clearing house for invoices to an integrated collaboration between law firm and in-house counsel. The integrated systems will allow for the exchange of documents as well as invoices.
Fully integrated e-billing systems allow the law firm and client to have access to the same documents and schedules. A fully integrated system can include matter management, document management, collaborative communication tools, budgets, forecasting and management in a single application. This can be especially useful in ongoing litigation where communication and collaboration between law firm and client is crucial.
Payment arrangements vary by third party vendor. Some systems require the law firm to pay either a percentage of fees or a flat fee. Some are free of charge for the law firm. Typically the law firm will not be able to pass the cost along to their clients.
How Do Client Guidelines Apply?
Electronic billing systems allow in-house counsel to easily enforce client guidelines. For example, if the guidelines only allow for a certain cost-per-page charge for photocopies, the electronic billing system can be programmed to reject the invoice if it doesn't comply. The in-house counsel will never see it. The law firm must then fix the problem and resubmit the invoice to comply with the client guidelines.
Some clients will not pay for facsimile or legal research. The system will reject invoices if they contain these charges. Some systems will reject invoices if they appear to be blocked billed (ie: several tasks in a single time entry), if certain key words are used or if more than one attorney attends the same meeting.
Other clients have negotiated rates for individual timekeepers. When a timekeeper exceeds their negotiated rate, the invoice will be rejected. This encourages law firms to communicate any rate increases well in advance.
Life-to-date statistics are accumulated in most e-billing systems. If a matter budget has been exceeded, the invoice can be rejected. This forces law firms to pay attention to agreed-upon fee caps.
The automated audit functions of e-billing systems can bring certain irregularities to light that otherwise may have passed unnoticed. For example, two attorneys may have had a conference. Attorney A charges 1 hour while Attorney B charges 2 hours. When time entries are sorted by task and activity code, these entries are viewed side by side. When used in tandem with task-based budgets, each time entry gets a closer view when total life to-date-time approaches or exceeds the budget for that task.
Dealing With Rejection
Rejection of submitted invoices can be frustrating. Dealing with the rejections can be time consuming. Repeated submission of revised invoices can get tedious. How can this be avoided?
The basic rule of thumb is to know your client and third party vendor. It takes a bit of trial and error at the beginning to know what is acceptable language in a time narrative. As an example, we had a client that forbids "block billing" on invoices. This refers to the practice on including several tasks in one time entry. Invoices were being rejected as being block billed in cases where they were not. Through trial and error it was revealed that a certain punctuation triggered the rejection. Now that time entries don't include it, we don't get rejections.
Make sure all previously agreed upon override rates are in place. Many rejections are on new matters where proper override rates for time or costs have not been implemented. All outside counsel guidelines should be read carefully and integrated with the time and billing system.
Keep track of all timekeepers working on e-billing clients. Some e-billing systems require a record of each timekeeper, new timekeepers must be approved or entered into the third party vendors system. At our firm, we use an Event Driven Reporting system to notify us when an unauthorized timekeeper has posted time to a 'restricted' e-billing matter. This gives enough lead time to get the timekeeper approved before the invoice is issued.
The rejection and resubmission of invoices can be frustrating, but the immediate knowledge that an invoice won't be paid is much better than finding out two months later.
UTBMS Task Codes In Electronic Invoicing
Most electronic billing systems require the use of Task and Activity Codes. These codes enable law departments to effectively monitor and budget their cases for each phase of the case. The Uniform Task Based Management System (UTBMS) code set was developed by Price Waterhouse as an attempt to standardize these codes throughout the industry.
There are separate code sets for litigation, projects, bankruptcy, and counseling. Most law departments require the standard codes, but some have modified them to accommodate their own needs.
Task codes are attached to each time entry. Electronic billing systems are programmed to reject bills when the task codes are incorrect or missing.
When task codes are used over time, the information can be useful for assessing the true labor cost of legal services and to effectively construct budgets on future projects. The choice of law firm on future engagements may be based on the firm's efficiency in certain aspects of past cases.
What Are The Benefits To Law Firms?
Many firms question why they need to jump through hoops and pay a third party to deliver an invoice to their client.
Our experience has shown that invoices are being paid faster. Clients that typically pay their invoices in 90 days are now paying within 30 days.
Some third party vendors enable law firms to view their clients' workflow. Firms can view the invoices as the client sees them. Firms can also see where the invoice is in the review process. It will display whether the invoice has been delivered to the reviewer, is in review, has been approved, has been submitted for payment or has been paid. Law firms no longer have to worry about invoices being lost in transit.
Automated email notifications are a standard feature of most e-billing systems. Law firms are notified when new matters are opened. This is a useful feature as it's best to get matters set up properly from the get-go. It can prove difficult to go back and add task codes to each time entry if matter was not set up correctly when time entries start coming through.
What's In Store?
Our experience with electronic billing has only been with large institutional clients. As the procedure becomes more accepted, it will be adopted by smaller entities. Some third party billing vendors have single attorney law departments using their systems. Clients requesting electronic billing are becoming more commonplace.
Budgeting is also on the horizon. The LEDES Oversight Committee has recently approved a standard file format for submitting matter budgets. Budgeting used in tandem with UTBMS Task Codes will enable law departments to monitor various aspects of each case. Future engagements most likely will contain budgetary limits on each task. Law departments can gain a sense of which firms are more efficient at which tasks. This could influence their decision to choose one firm over another.
Electronic transmission of invoice data is here to stay. From a law firm's perspective, payment turnover cycles are reduced and invoices don't get lost in transit. For the law department, it brings automated auditing for compliance with outside counsel guidelines as well as improved tracking of budgets and tasks.
Scott Wirtz is the Controller of Loeb & Loeb, LLP, a 225-plus attorney firm with offices in Los Angeles, New York, Chicago and Nashville. Scott holds a B.A. in business from California State University at Fullerton and is a licensed CPA. In his 17 years at Loeb & Loeb, Scott has strived for ways to streamline the timing and billing systems through technology.