Are Corporate Legal Departments Dragging Their Feet When Paying Their Law Firms, and if So, What’s Causing the Delay?
In the context of the lifecycle of a legal matter, the time it takes to pay an invoice is critical to a law firm’s profitability. Therefore, billing delays and unpaid invoices cost money and valuable time. However, when a law firm sends a bill to corporate counsel, it could be hundreds of pages long, cover multiple matters, and clock in at millions of dollars. So, shouldn’t it take time to review and pay these cumbersome bills? Experts say yes and no.
In the first nine months of 2022, legal departments took 3.7 percent longer to pay outside law firms, meaning that if it used to take them 30 days to pay an invoice in 2021, it took 60 days in 2022. A recent Citigroup report blamed this lag time on short-staffing at billing departments and e-billing issues, but not everyone is so sure.
Stephanie Corey of the consulting firm UpLevel Ops recently told Law.com that there are plenty of ways for legal departments to keep up with their bills. “Even if you can’t find an enabling coordinator, you can hire one through legal service providers,” she said. “It makes no sense.”
It can be hard to tell what is driving payment delays. Some likely scenarios include:
In-house teams are taking longer to review bills for accuracy.
Corporations are looking at legal departments more like a business, with closer scrutiny over budgets and potential discounts.
Law firm leaders fail to shore up the time it takes to complete the billing process. According to Aderant’s Business of Law and Legal Technology Survey, 60 percent of all law firms take a week or more to invoice clients.
Legal departments might take more time to pay bills as a cost-control strategy, prompting firms to become more aggressive in collecting receivables.
When attorneys take additional time to log their hours, lag times for companies on strict financial reporting schedules can be the result.
Tensions between corporate legal departments and outside law firms are often driven by confusion and mistrust surrounding billing practices or the lack of performance data to quantify the value of the services provided. But whatever the underlying cause, the problematic issues that sometimes develop between law firms and legal departments can jeopardize the ultimate goal of everyone involved: the fast, efficient, and cost-effective delivery of high-quality legal services.
How to Resolve (and Prevent) Billing Disputes
Lawyers want to be paid for their work – preferably on time. Although the outstanding amount might be relatively small, the longer a legal bill remains unpaid, the greater the chance irreparable damage to the relationship will occur. Here are some ways to avoid billing disputes and get invoices paid faster:
A written fee agreement signed by both parties sets forth the scope of the relationship, including billing rates, how often the legal department will be billed, and how they have to make payment.
Outside counsel guidelines that set out specific policies and procedures will provide direction regarding legal fees, billing and expenses, conflicts of interest, budgeting, confidentiality, data security, privilege, and more.
Full disclosure when a law firm’s work hours start to exceed the original agreement or a legal department’s work expectations surpass what was initially agreed upon. Failure to do so will cast doubt and encourage disputes.
Demand detailed and clear invoices instead of overly general or vague line items. Law departments will be more willing to pay invoices they understand and agree with.
Meet in person to discuss billing issues and potential resolutions. Although the right legal billing system will likely speed up processing time, it can’t provide the human touch needed during negotiations about questionable charges on invoices.
Institute a legal spend management system that reviews, tracks, analyzes, and reports on costs taking the ambiguity and vagueness out of the relationship between in-house teams and outside law firms.
When in-house teams institute a legal spend management system and outsource billing review to a third party, they begin to work cooperatively with outside firms to correct specific billing errors and excessive charges.
How Bill Review Services Can Help
Third-party billing review services enhance the relationships that legal teams have with their outside law firms by:
Introducing transparency into the spend management process so that in-house departments receive fair value for what they pay.
Eliminating legal invoice review time for in-house teams so that they can focus on substantive legal tasks.
Defining budgets that everyone can live with by providing insight into spending categories and soft costs.
Helping in-house legal teams control outside counsel spending without having to look over the shoulders of their third-party lawyers.
Decreasing the hostility that may arise due to billing issues when corporate teams question specific charges on invoices.
Implementing predictable billing guidelines that are firm yet fair to keep in-house teams and outside counsel on the same page.
Boosting law firm accountability and legal department trust in the accuracy of legal bills.
Encouraging the mutual sharing of practical feedback between teams ultimately boosts the relationship between corporate departments and law firms.
Many in-house lawyers hesitate to call out outside law firms for what they think are unjustified charges for obvious reasons: they are uncomfortable pointing out errors and fear that doing so will weaken the relationship. Instead, third-party bill review services don’t demand blanket discounts or lower rates but instead identify specific charges that appear to require an adjustment.
After potential errors and overcharges are pinpointed, outside counsel are encouraged to respond with additional facts to justify the charge, and the billings are revised, if necessary. These services also utilize human reviewers to discern the value of the services rendered to help assure that legal departments are getting maximum return for the rates they are paying. Legal billing services strive to bridge the gap between GCs and law firms and ultimately strengthen bonds by reviewing all charges on every legal bill, focusing on the hours, not the rates.
