In legal operations, a two-fold everyday challenge centers around billing and legal spend management. Legal departments experience high volumes of invoices from outside counsel that should receive thorough review. Legal departments without advanced e-billing software engage in this process manually, which can lead to non-compliance with outside counsel guidelines and over-payment of legal fees.
LexisNexis® CounselLink®, a cloud-based enterprise legal management platform, extracted billing data from its database of thousands of corporate legal department customers and respective law firms. It found that, on average, customers approved nearly 700 invoices in June 2024. This may seem like a manageable volume; however, each invoice can have thousands of line items to review.
Particularly for larger enterprises, like insurance carriers, the volume of invoices passing through the legal or claims department can number upwards of 35,000 invoices. For the sake of imagining the daunting task of invoice review generally, let’s say that each invoice averages perhaps 50 line items. That extraordinary number equals about 1.75 million invoice line items to review in a single month!
With lean legal teams in most departments, reviewing 1.75M line items is impossible…without an advanced e-billing solution to help. In this tech era, most legal departments are equipped with some type of e-billing software to assist with invoice review. Some smaller departments may use software that can’t scale for growth; others may use a homegrown combination of software and spreadsheets. Regardless, having the right software can provide valuable benefits.
Case in point, according to a CounselLink data review, legal departments saved nearly 3% on outside counsel spend when invoice review includes AI-powered financial management tools configured to enforce billing guidelines.
Put Actionable Legal Department Financial Management Tools to Work
E-billing tools, like CounselLink+™ SmartReview® powered by a proprietary AI algorithm, help legal departments efficiently reduce legal spend. The opportunity to have AI-powered robot eyes taking the first in-depth review of invoices helps immediately identify legal spend cost savings from erroneous charges.
Legal departments implementing billing guidelines and employing e-billing solutions can reduce the charge amount for legal services billed in error and not in compliance.
In the first half of 2024, CounselLink customers reduced invoices by 2.6% from the total amount billed during that timeframe.
SmartReview reads each line on an invoice and, depending on the violation rejects the invoice, reduces specific charges, or flags charges for further review. Additionally, this advanced legal financial management tool uses workflows so that appropriate people are involved in invoice review at the right step.
Employ Robust Guidelines and Billing Rules to Generate Legal Spend Savings
There are many types of rules that SmartReview employs to help generate the highest overall legal spend savings with legal department financial management tools. For example, the following list of rules can be configured within advanced financial management tools:
- Billing of only approved billable hourly or non-hourly rates
- Timeliness of billing
- Non-duplication of charges already billed
- Clarity of work performed
- Not billing specific disallowed activities
- Compliance with matter budgets
- Appropriate number of hours or timekeepers
- Timekeepers approved to bill against a matter
- Billing of legal work, not of administrative activities
- Not billing excessive time
As an advanced legal department financial management tool, SmartReview utilizes AI to review charge lines throughout invoices and can take three actions:
- Trigger outright rejection of an entire invoice
- Automatically reduce or adjust a charge
- Flag a charge for additional review
On top of AI, human invoice reviewers play an important role and can use discretion during manual review of charges to question and efficiently adjust or remove a charge.
Reduce Spend with Legal Department Financial Management Tools
In particular, legal department operations can expect several types of savings by implementing advanced legal financial tools, including “adjust” and “flag” rules.
Adjust Rules
Invoice line-item charges flagged for adjustment result in savings 47% of the time.
Rules that are configured to adjust charges have their flags overridden the least i.e., legal departments are more likely to allow the adjustment to stand so they can benefit from more savings. These three types of violations are most consistently adjusted from invoices:
- Un-approved hourly or non-hourly rates have been billed
- Duplication of charges already billed
- Specific disallowed activities
It stands to reason that expectations of timekeepers not being allowed to bill at rates that exceed what’s been approved are broadly enforced. Other rules that usually result in invoice adjustments enforce expectations in place in virtually every legal department’s outside counsel guidelines.
Flag Rules
Flagged charges result in savings only 0.4% of the time.
Notably, some flags are not intended to result in legal spend savings. Instead, flag rules drive the invoice reviewer to validate certain things related to a charge. For instance, a rule can be configured to flag when a vendor bills fees associated with certain experts. A flag for this type of charge is a reminder for the reviewer to validate that prior approval had been obtained before engaging the expert.
Client Discretionary Adjustments
During invoice review, 45% of adjustments result from invoice reviewers using discretion to reduce charges on an invoice.
Common reasons for discretionary adjustments include:
- Excessive time
- Vague charge descriptions
- Unapproved work product
- Duplicative effort
- General clerical tasks
- Lack of supporting documentation
At the End of the Day, Size Matters
Savings are considerably lower on large invoices (those with more charge lines) than on small invoices.
The more lines to review, the lower the savings:
It is understandable that due to the effort of reviewing each charge line on an invoice with a very large number of lines, savings would be lower on such invoices. However, given that invoices with more than 1,000 charge lines also have very high bill amounts (on average over $800,000), legal departments with large invoices are likely leaving money on the table. If legal departments could more closely scrutinize these invoices, the savings opportunity would amount to millions of dollars.
Consider These Best Practices
1. If a guideline/expectation is important, make sure the rule that enforces it is configured to adjust/reduce charges and not just flag
Rules that are configured to simply flag almost never result in charge adjustments. Rules configured to flag only result in savings 0.4% of the time.
They are creating noise for the invoice reviewer that may prevent them from looking at flagged charges that might really be worthy of greater scrutiny.
3. Ensure that you have the right team in place to review large invoices.
Invoices with more charge lines receive less scrutiny, resulting in lower savings.
Tip: Take advantage of CounselLink’s Managed Bill Review Services. Allow lawyers who are experts in invoice review to take this burden off of legal operations staff and the legal team. On average, the additional savings obtained offset the cost of the service by five times.
For example, a customer who has used CounselLink Managed Bill Review Services for the last two years has saved twice as much on invoices reviewed through the service vs all other invoices.
4. Learn from invoice reviewers making discretionary adjustments.
In most legal departments, there are a few invoice reviewers who make many more discretionary adjustments than most. Set up a “lunch & learn” session and ask these individuals to describe their process and key things they look for in their review process, so other reviewers can learn from them.
5. Engage CounselLink for a Rules Optimization project after using CounselLink for at least a year.
It’s important to clearly understand which rules are generating savings and to identify individuals who may not be enforcing some guidelines to take corrective action as soon as possible. A rules optimization project is performed by a consultant who reviews legal department outside counsel guidelines and then conducts a quantitative analysis of the effectiveness of rules and consistency of their application.
The output of the project provides recommendations for rules to add, remove, or modify configuration; training (based on inconsistent or inappropriate application of rules), and changes to guideline language.
On average, in the year following this project’s completion, legal departments obtain 2.3x the invoice savings of the prior year.
Engage Professional Services to Optimize Guidelines
Make sure billing guidelines are current and include best practice language used by your peers. Professional services teams work closely with legal operations and provide guidance to set and deploy outside counsel billing guidelines. Teams that work on billing guidelines ensure the rules are robust and comparable to peer guidelines.
Billing guidelines are a precursor to rule sets. Some legal departments have no billing guidelines, so CounselLink Professional Services helps them develop these important documents for outside counsel compliance.
More often, legal departments have billing guidelines, and CounselLink Professional Services reviews, analyzes and establishes updated rules. Because the Professional Services team interacts with many companies, there are best practices and recommendations the team provides to legal departments. A primary recommendation centers around the configuration of rule sets around automatic adjustments, date variations, rejection of charges, and best practices during invoice negotiation.
Applying these best practices will lead to greater cost savings and more consistent enforcement of your outside counsel guidelines. The use of advanced legal financial management tools provides valuable benefits to invoice reviewers, the legal department and overall budget management.