Fitting the bill
All law firms should adopt an electronic billing system to provide clients with the efficiency and consistency they increasingly expect, says Damian Blackburn
Electronic billing means different things to different people. To some, sending an invoice by email is electronic billing. At the other end of the scale, some companies can load billing information directly into their clients' systems, eliminating much of the administration involved.
The way in which many law firms deliver invoices will not have changed much over the years. It is still common for law firms to send a typed invoice to clients, often with no breakdown of the work for which they are charging. This is often accompanied by a fairly haphazard approach to the sending out of invoices. There is also a propensity for bills to be adjusted by fee earners before being sent out, which means accounts staff have to adjust the figures in the practice management system to match what goes out to the client.
There are plenty of areas of concern with this type of invoicing regime. Internally, it is not very efficient in terms of administration. Externally, the lack of information makes it difficult for clients to analyse their expenditure with a particular law firm, or to compare it with the breakdown of charges from other law firms.
To some clients, receiving an invoice for a considerable sum of money with no breakdown is not helpful. You wouldn't expect this from your local supermarket, or indeed any other supplier. In this age of incredibly granular information from just about everyone you spend money with, the total absence of billing information from many law firms is a little odd.
As technology advances, clients look for increasingly sophisticated information from suppliers, and more efficient ways of receiving and processing that information. That information becomes more relevant in times of economic downturns, as firms look to analyse (and rationalise) all their costs. Clients also want a more efficient method of receiving and processing information relating to bills.
What this boils down to is having a standard way for law firms to record information (input) and a standard format for delivering that information (output). The standard input that is being adopted is the UTBMS standard. The standard output is the LEDES electronic billing format.
A uniform task based management system (UTBMS) is a standardised set of analysis codes which law firms can use to describe the time they are charging for - known as 'activity codes' in most firms. Each firm will have a set of activity codes built into their time recording system, but there is not likely to be much similarity between these code sets. Clients attempting to analyse the breakdown of the work that law firms are doing for them do not have a common set of analysis codes to enable them to do so. This is a problem when a client has more than one firm working for it, and wants to compare their work.
The UTBMS system includes code sets for: litigation, patents, trademarks, counselling, bankruptcy and projects; the latter being a catch-all for work that does not fit the other categories. These code sets are principally designed for litigation, reflecting their origins in the US. This schema also includes a standard set of expense codes for firms to record expenses.
LEDES stands for legal electronic data exchange standard. This is the standard electronic output that clients can use as an import into their own analysis systems. Or, in other words, a data file. The format of this standard can be viewed at www.ledes.org. There are a few variations of LEDES files, but generally they provide roughly the same information. Clients who ask for LEDES standard outputs should ask for a particular flavour of LEDES file, as that is what their analysis system will have been set up to incorporate.
Areas of concern
It is unlikely that producing LEDES-style outputs will trouble law firms too much. Vendors of practice management systems may have done the work already and, if not, should be capable of doing something fairly quickly to enable firms to render bills in this format.
On the other hand, there are a number of issues with UTBMS codes, of which two stand out. First, the code sets are currently too narrow for most UK legal work. They need to be expanded to cope with the breadth of work types that UK lawyers typically undertake. Second, practice management systems need to be reworked to incorporate them, and users need to be retrained.
This would be easy if the UTBMS coding schemas were to replace the current coding schemas in one fell swoop but, as they will have to run alongside them while additional code sets are developed, this is likely to cause a few problems. Nothing insurmountable though; and certainly not a deal breaker.
Biting the bullet
You might think that this is a future event, but the reality is that firms are already being asked to produce invoices in this format, and this will only increase as time goes by. It seems almost inevit-able that larger corporate clients will adopt the methodologies that require law firms to use both UTBMS and LEDES. Of course you can wait until you are forced into using these techniques by one or more of your clients, or you could bite the bullet now and use it as a selling point. Transparent, consistent, efficient information delivery. What a lovely idea.
Damien Blackburn is IT Director at Davenport Lyons.