Glum Times for Electronic Billing?

[originally published on Law.com, October 15, 2004.  Also published in Law Technology News as The Benefits and Costs of Electronic Billing and in the New Jersey Law Journal as Electronic Billing:  Glum Times for E-invoices?]

The LawNet 2004 E-billing Survey outlines the obstacles law firms face

Four years into the century, and verbs beginning with e-remain hot. Electronic billing, or e-billing, has been a commonplace amongbusinesses outside the legal profession for some years. It remains, however, amuch more complex concept than the shortcut name might imply.

The LawNet 2004 E-billing Survey has just been released, and the latest versionoutlines the obstacles faced by law firms using e-billing and the notinconsequential costs associated with it. LawNet Inc. is an independent networkof legal technology professionals. It offers regional and national conferences,as well as numerous white papers and surveys that are published and offered onits Web site, www.peertopeer.org.

Its latest e-billing survey discusses issues that will arise after the selectionand implementation of an e-billing product, and the results were not necessarilyhappy. It should not scare firms from moving towards e-billing, but there appearto be greater benefits for the firm’s clients and fewer savings for the law firmthan might be anticipated.

WHAT IS E-BILLING?

First, let’s clarify what e-billing is. It is not a business-to-consumerrelationship, but rather involves two businesses sharing information, with thelaw firm transmitting, in an electronic format, data used to generate a paperbill.

Sixty-seven of the 68 firms in the LawNet study use e-billing; about half havemore than 150 timekeepers.

This is surprisingly high, when compared with recent surveys. For example, a2004 poll by LexisNexis Martindale-Hubbell and Corporate Legal Timesfound that 61.9 percent of law firm lawyers said their firms offered e-billing,while only 8.2 percent of the general counsels reported using e-billing.

A 2003 report by Altman Weil found that 7.7 percent of law departments are usinge-billing and 2.8 percent are making plans to convert. This percentage isslightly higher than LawNet’s similar 2002 survey, when 93 percent ofrespondents indicated they were doing some type of e-billing.

NOT SIMPLE

The new LawNet survey appears to debunk assumptions about the promise ofe-billing.

First, the simplicity offered by using standardized billing formats is elusive.Ideally, when the e-billing systems talk to one another, they share a common language. Two file format standards — Uniform Task-Based Management System (UTBMS)and the Legal Electronic Data Exchange Standard (LEDES) — have been createdspecifically to simplify these transactions.

Yet only 36 percent of firms responding communicated with clients using only oneformat; 33 percent used two formats; and the remainder used three formats ormore (the highest being 10). Many firms reported that they were asked tocustomize the base format to accommodate a client’s system, which not onlydefeats the purpose of the standard but makes supporting the new versiondifficult for technology staff.

These tweaks for each client put a spotlight on the administration andcustomization of the system. E-billing systems use templates to identify whichdata is to be transmitted. A new client may be able to use an existing template,which is simple to accommodate. But when a new template was involved,respondents indicated that an average of 127 hours and $1,485 was required toset up a new e-billing client. These are typically one-time costs, although 12percent of firms had received as many as 10 change requests in the previous 12months from a client, and 2 percent had received as many as 20 change requests.

TIMING

Respondents noted the lag time between a firm’s e-billing system being availableto a client, and that client’s termination of acceptance of paper invoices,during which the client would not pay. Only 18 percent of the firms reportedthat they could get through the setup process with a client, including havingthe client’s e-billing systems work, in less than 30 days; 35 percent reportedthat it would take more than 50 days. This potential income flux, which could besubstantial if e-billing is being done at the request of a large client, willneed adequate anticipation and is a process that the law firm should spendadditional resources on to keep as brief as possible.

OFFSETS

E-billing is touted for its efficiencies in eliminating data entry errors andproviding additional, detailed information. But these efficiencies are offset byan almost manual process to ensure the data going to the client is correct. Theprocess enables a transmission of data to the client, whose system thentypically validates task codes and billing rates. If the transmission fails thecheck, it is rejected and the law firm must fix the errors.

On average, only 19 percent of invoices had to be resubmitted. In this numberlie a few significant issues for the law firm, where respondents noted that:

  • 91 percent clean up the invoice data before creating the electronic invoicefile.
  • 90 percent manually modify the invoice file.
  • 81 percent spend time checking it for compliance prior to submitting it tothe client.

Law firms that commit to multiple formats and customizations place themselves ina position where the staff time saved in their finance departments may be eatenup by increased time used by technology staff – or may be a wash in finance,because the person involved with paper bills is now cleansing electronic data.

BALANCING ACT

The most beneficial result of this survey is that it highlights the balance alaw firm needs to engage in when considering e-billing.

While clients seem to be the impetus behind law firms, big and small, moving toe-billing, they are not picking up the costs.

Firms responding to this survey appear to be paying $68 per invoice in order todo e-billing. This includes the soft costs of time spent by staff to process thedata.

It also includes the vendor fees, which range from $0 for 10 percent ofrespondents, to as much as $30,000 a year for 24 percent of respondents.

It is worth noting that 75 percent of respondents’ clients were using anexternal vendor, to whom the law firm transmits its data. That vendor, throughan annual fee or through a percentage of the invoice amounts processed of asmuch as 3 percent per invoice, is an ongoing cost for e-billing services. Thetotal cost of e-billing over the past 12 months for respondents ranged from lessthan $10,000 for 12 percent, to over $200,000 for 14 percent. This might makesense if the law firm were to move entirely to e-billing. But articles on thetopic in the past 18 months typically note firms billing only as much as 10percent electronically. The average firm in the LawNet survey sent about 5percent of its invoices electronically.

Electronic billing offers your clients a powerful tool to measure your firm’swork and it can help you stand out positively among your competitors at a timewhen general counsel have the reduction of costs as the number one concern.

The costs of getting into e-billing must be balanced against the businessgenerated by the client demanding it and the additional soft and hard costs thefirm will incur to maintain the system.

The future of e-billing may be bright, but it will require your firm to apply alot of polish and elbow grease to keep it that way.

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