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In the beginning, there was paper a lot of paper, in the form of inches-thick law firm bills. For many law departments, the paper system remains. Others have turned to electronic solutions to their billing needs.

Some of those law departments are finding that approaching e-billing with a single goaltranslating those paper bills onto the screenis aiming low. Todays e-billing systems incorporate matter management, allowing for easier budgeting, bill review and data culling. For some law departments, systems incorporating e-billing have become the foundation for better outside spending control and efficiency and more businesslike practices overall.

When e-billing started out, it was hyped to submit detail associated with the invoice into a system so it could be looked at, aggregated and reviewed in a uniform manner, says Jane Bennitt, a manager at legal consultancy Hildebrandt Baker Robbins & Co. Because it worked so well, very quickly law departments started wanting other features involved. So e-billing today is a misnomere-billing isnt just e-billing.

1. Cut Out Paper

In a recent ACC/Serengeti survey of in-house counsel, only 19 percent of respondents were using some sort of e-billing system. If you’re still dealing with paper bills, it’s understandable that the first step to automation is daunting. E-billing companies have become an industry unto themselves, presenting an overwhelming amount of options. And law departments all have different needs–factors such as corporate structure, international reach and preferred budgeting processes will affect what system you eventually choose.

“Selecting an e-billing system is an expensive proposition, and the amount of money involved in making a bad choice could be detrimental to your career,” says Jane Bennitt of Hildebrandt. “Law departments may take years of looking into systems before they actually select one and get started. And they may use one for a period of years before they throw their hands in the air and say, ‘This isn’t working.’”

When clients approach Bennitt with scenarios like that, she always asks first if the relationship with the previous vendor can be repaired. “The cost to change systems is extraordinary,” she says. “If a law department has old systems that haven’t been updated, spending a fraction of the cost of a new system could make something work a lot better.”

To avoid having to weigh such options, spend some time researching what will be best for your department, which might mean working with a consultant. “Some law departments have made system selections and not been happy with the results from them, whereas if they had had more guidance, the results may have been different,” Bennitt says.

Before and After

Goal: Cut out paper to coordinate approvals in a global company.

Before: CLO Gary Reiff’s team of three lawyers at real estate private equity firm Black Creek Group had to field paper bills covering millions of dollars in legal work from 20 law firms and send them for approval to business group leaders located in different offices, states and countries.

“We were trying to keep track of which bills had been reviewed and approved, which had gone to accounts payable and the overall budgeting for the various companies,” Reiff says. “It was exceedingly difficult because we had no coordinated system for review of those bills.”

In 2007, Reiff’s team set a three-month deadline for its firms to start submitting bills electronically. In-house, they used the interim to train business group leaders on the system and implement a coding system to make categorizing matters a breeze.

After: The paper bills are gone, and so are the days of chasing invoices through the company. Bills are received, reviewed and paid through Serengeti Tracker, which Reiff chose for his experience with the system when he was in private practice.

“I didn’t want to create work for our law firms,” he says. “You don’t have to code differently or do special things; you just do everything the same–write down time and expenses, and easily translate it into the billing system.” Outside counsel also appreciate that they no longer have to inquire about the status of bills–the system lets them login and check for themselves.

The system allows the trio to efficiently manage invoices for “a lot of legal work,” Reiff says. “It allows us to move, review and address legal bills without dealing with paper, and it allows us to cross-compare law firms and rates. We keep up in real time with legal expenses.”

2. Accelerate Approvals

“A paper bill from a law firm can be literally inches thick,” says Brad Blickstein, principal at the Blickstein Group. When faced with phone book-like invoices, reviewing them generally comes to mean initialing pages after a quick glance, a matter of asking yourself if you felt you got your money’s worth, says Dan Ruderman, an account executive for LexisNexis, which offers an e-billing/matter management system. When you’re dealing with paper, comparing invoices to previously set budgets and billing guidelines of varying complexity can become an ordeal.

“If you’d agreed that no more than two attorneys would attend a deposition, you’d have to look at each attorney’s data to see what depositions they attended and then see if anyone else’s information matched up,” Blickstein says.

Many systems now track compliance with billing guidelines and budgets, allowing greater oversight with little effort.

“In a perfect world, when the client receives the bill they’re able to look at it and feel comfort we’re adhering to guidelines–not just billing guidelines but case management guidelines,” says John Smith, CFO at Ogletree Deakins.

Some systems ensure compliance–for instance, Serengeti Tracker just patented a feature that automatically rejects invoices that don’t comply, meaning in-house counsel no longer even have to set their eyes on bills until they’re right.

“Relationships become more businesslike,” says Rob Thomas, who is on Serengeti’s management team. “The clients become more sophisticated and more engaged, rather than just turning a matter over to law firms and saying, ‘Handle this.’”

The future may bring even more automation to invoice reviews. Disputing an item on a bill once meant drafting a memo, and in e-billing systems it can be as easy as clicking “flag,” but one day the billing back-and-forth may disappear altogether.

“The next real advance would be for firms to be able to test their bill against their client guidelines before submission and avoid the whole back and forth,” says Ruderman.

Before and After

Goal: Ensure the department and outside law firms are sticking to budget.

Before: In a recovering economy, the importance of budgeting outside legal work has become crucial to cost control. Craig Bohn, chief IP counsel at Semitool, also faced increasing supervisory responsibilities, and thus diminishing time to commit to budget oversight. “Before, either quarterly or at the end of the year we would see where we were, but any month we could go over if we didn’t have budgets ahead of time–it was something we had to manage independently,” Bohn says. The company previously a paper billing system.

After: The IP team now has a matter management system that integrates billing to make budgeting automatic. When a Semitool lawyer sets up a matter, outside lawyers get an e-mail notification that they need to submit a budget for the matter, which Semitool can approve or adjust. If a law firm invoices for an amount above the set budget, the system will round it down. “It’s amazing how outside counsel have become very responsive to my desire for budgets and status reports,” Bohn says. “I used to get invoices without ever having received a budget, but now I’m committed–they already did the work without me asking.”

Evidence of the system’s success is the fact that Bohn doesn’t even have to think about it. “It’s become intuitive,” he says. “It’s really three things you’re doing [as an in-house lawyer]: legal work, finance and the link between the two. Now those just blend together for me. … It gives me peace of mind that I’m doing my best to manage the money.”

Before and After

Goal: Cut out the hassle and wasted time of manually assembling accrual reports.

Before: The law department at Olin Corp. has a quarterly obligation to report to the finance division any accrued law firm spending–all billings stuck in the approval pipeline or not yet received from law firms. The task should be familiar for many–according to a recent ACC/Serengeti survey, 80 percent of law departments have an obligation to report accruals at least annually, and 40 percent monthly.

“We used to have to pull each law firm’s e-mails and create a spreadsheet of the responses of what the unbilled amounts were for each quarter,” says Stu Roth, senior deputy general counsel. “We were using a system that didn’t provide nearly the functionality or the e-billing capability that our system provides for us now.”

After: Olin upgraded to a system with more bells and whistles, including a function that automatically collects unbilled amounts from law firms and creates an accrual report that Roth can hand to finance. The Serengeti application also gives a snapshot of invoices stuck somewhere in the approval chain. “Between the two,” Roth says, “we know exactly how much we might be accountable for in a particular quarter, and that gives comfort to finance and the outside accountants.”

3. Work Your Data

Some of the dominating conversations of the moment in the legal industry focus on the evolving client-law firm relationship, including alternative fee arrangements and the oft-declared “death of the billable hour.”

“We endorse a partial paradigm shift, [in which] the focus is on the work, and the billable hour is a byproduct of that but not the focus,” says Eyal Iffergan, CEO of Hyperion Global Partners, a legal consultancy. “What ties back to the existing conduit of e-billing is the ability to translate that context in the information you share, allowing law departments to focus on the work their firms are doing and understand what it costs to accomplish that work.”

For instance, e-billing systems can be a crucial tool in structuring AFAs with law firms to fully understand where your money is going and ensure you’re getting the biggest bang for your buck.

“Before e-billing, I’d say if you went to a Fortune 500 company and asked how many law firms they used, they wouldn’t know,” Blickstein says. “Now they can ask, ‘How much are we spending on depositions in Arizona? What’s the cost of a typical slip-and-fall defense in Ohio?’”

And most law departments using e-billing already have the data, they just need to put it to work.

“If your e-billing system is capturing the information and you’re typing your cases and tracking tasks, then you can either budget or create AFAs or both,” Ruderman says. “If you share that information with your firms appropriately, then you both have comfort that you have a fair basis for the relationship.”

Before and After

Goal: Streamline an existing matter management system for better analysis of spending data.

Before: The data-driven law department at United Technologies Corporation took advantage of the need to move to a new matter management system and used it as an opportunity to improve the classification of their matter data. “In our previous system we were very accommodating to the requests of the user base for additional codes and data fields” says Kimberly Townsan, senior manager of legal administration. “The end result was fragmented data; for example we had numerous codes which were used only a handful of times … within a database of over 100,000 matters.

A team of 40 lawyers and paralegals across all practice areas dedicated a year to identifying and prioritizing both the functionality and data requirements for a new system. Matter types were determined based on “process,” and UTC was able to reduce the primary matter types by more than 50 percent to just eight: administration, advice and counseling, antitrust, IP prosecution, litigation, mergers, acquisitions and divestitures, subpoenas and transactional non-M&A. Within each type, matters may be further categorized.

“We pressed for a ‘root cause’ when additional codes or fields were requested,” Townsan says. “Data for the sake of data can create inefficiencies. We wanted to avoid lengthy lists of codes. Additional classifications had to be warranted based on volume and business need.” The group determined by consensus, for example, that UTC’s asbestos docket incorporated specific enough data to warrant its own subtype, whereas M&A matters could be categorized within one type with further definition accommodated within a single data field.

After: “Understanding our reporting needs up front enabled us to design the system to ensure the data was properly categorized to ‘slice and dice’ it. We can now use our matter billing data to zero in on opportunities for savings; for example, targeting AFAs or identifying areas for counsel consolidation through competitive bidding,” Townsan says.

The key for UTC was investing in upfront planning to ensure that the application selected, Lawtrac, met the company’s needs and could accommodate future changes. “It may not be that you need a complete revamp of matter management,” Townsan advises. “It’s working with senior management and the user base to identify the business requirements. Identifying functionality, how the data will be used and then getting the application to meet both process and reporting needs are the keys to success.”