Is E-billing and Artificial Intelligence the Only Spend Management Solution for Cash-Strapped Legal Departments?
Is your organization’s legal spend under control? This question is hard to answer without a comprehensive legal bill review process in place. When legal teams manually oversee invoices worth thousands of dollars, three distinct risks often emerge: errors, inconsistencies, and inefficiencies.
Corporate legal departments are under increasing pressure to reduce costs and boost efficiency, and legal bill review is an area where many are looking to do just that. However, e- billing software that uses artificial intelligence (AI) to flag potential billing errors based on a set of objective rules is typically not enough to create an effective spend management program by itself.
E-billing enables a corporate legal department to adopt industry standards for formats and billing codes. In addition, these AI-powered platforms can capture and digest data for reporting and analysis, compare them to industry benchmarks, and minimize the time spent inputting invoices into billing systems for review and payment processing. However, the time-consuming manual review process often cancels out the value and savings gained from legal e-billing. In response, many legal teams have combined third-party bill review with an AI-powered legal management system to:
Remove the burden of invoice review from internal staff
More consistently enforce outside counsel guidelines
Gain a greater understanding of the work being performed
Free up more time to focus on critical in-house responsibilities
Reduce costs
When human expertise is merged with e-billing platforms that utilize AI, legal spend management can become more efficient than ever before. Here are some of the ways a cooperative approach using both human expertise and AI can help strengthen the legal spend management process:
Humans Know What Legal Services Cost
One long-term advantage of legal spend management is that it gives all parties a clear perspective of what certain legal services realistically cost. This helps avoid billing guideline discrepancies that can reduce productivity, delay payments, and damage a legal department’s relationship with third-party partners. Here are some common legal billing discrepancies:
Excessive time – many clients believe a specific task took too much time but cannot explain why.
Junior-lawyer training – law firms often try to charge clients for a junior lawyer’s on-the-job training, which is the responsibility of the firm, not the client.
Inappropriate staff usage – when lawyers perform work that should be done by a junior associate or a paralegal for a lower rate.
Administrative tasks – some firms charge attorney or paralegal rates for duties that should be performed by administrative staff.
Overstaffing – clients should not have to pay three lawyers to complete a task that requires only one or two.
Inadequate description – when a line item on a bill does not adequately describe the activity performed.
Factual inconsistencies – time entries that do not match the task completed.
Duplicative work – charging for the same task twice, often across two billing periods.
Block billing – combining multiple unrelated tasks under a one-time entry without specifying the time each task required.
Internal communications - when multiple attorneys within the same firm discuss a matter and bill the time to the client.
You can’t improve your legal spend without understanding what your baseline is. Although bots can double-check to ensure that your legal spend is under budget, human eyes can determine whether you are overpaying for the legal services you receive or whether discrepancies exist.
AI Can’t Catch Everything
Regardless of what is being touted by e-billing vendors, there are items that a software review alone cannot catch. AI cannot thoroughly analyze the subjective and nuanced areas so frequently found on most law firm bills, and efficient legal bill review requires more than software and automation alone. While software is effective for flagging potential billing errors based on a set of objective rules, someone needs to review and manually “clear the flags” – make an independent determination regarding whether each rule violation flagged by the software is legitimate or a false positive.
Many legal departments do not have an internal process and the staff to communicate with each law firm each month to request changes or reductions, address subjective rules like excessive time and unnecessary work that software cannot catch, and handle the negotiation of direct bill reductions with outside law firms to provide immediate and realized cost savings. In other words, whether you have an internal staff dedicated to bill review or outsource the work to a bill review vendor, it is critical to conduct an attorney review in conjunction with the computer-based evaluation.
Humans Can Enforce Billing Guidelines
When legal departments enforce billing guidelines, organizations obtain direct cost savings in the form of invoice write-downs. Reducing these unauthorized expenses could equal as much as five percent or more of an organization’s annual legal spend. However, even the most cutting-edge software cannot have a conversation about billing with a law firm. An experienced negotiator is needed to discuss potential billing adjustments and obtain agreement on the modifications to see realized savings.
The method used to communicate billing guidelines to outside counsel is critical. For example, forwarding your billing guidelines as an email attachment is an ineffective way to introduce standard rules to new counsel or explain an updated provision to a long-standing partner. Instead, a direct conversation is usually necessary.
AI Helps Attorneys Make Better Decisions
The processing power of AI allows lawyers to make data-driven decisions with much more information than humans can access by themselves. According to a recent Business Law Today report:
The potential benefits of AI in the law are real. It can increase attorney productivity and avoid costly mistakes. In some cases, it can also grease the wheels of justice to increase the speed of research and decision-making. However, AI is not yet ready to replace human judgment in the legal profession. The risk of embedded bias in data that fuels AI and the inability to adequately understand the rationale behind AI-derived decisions in a way understandable to humans (i.e., explainability) must be overcome before using the technology in some legal contexts.
Many professions are being dramatically transformed by the capabilities of AI, which is replacing human colleagues in some offices. However, in the legal industry, AI is more likely to aid than replace attorneys to quickly spot and correct errors in legal bills that may have been missed by human eyes alone.
Legal Spend Management Services the Best Option
More and more corporate legal departments are using legal spend management services to review their bills for errors and discrepancies. These services typically use attorneys to analyze every charge on every legal bill received from outside counsel to ensure that each time entry adds fair value and negotiate bill adjustments when appropriate.
Legal spend management services allow legal departments to avoid uncomfortable conversations about charges with outside counsel, thereby improving relationships. In addition, by removing the friction surrounding financial issues, clients and attorneys can focus on making legal arguments, not meticulously reviewing legal bills for errors.
