E-Billing: Friend or Foe?

What you should know about the newest trend in legal billing.

By Brett Burney

September/October 2005 Issue

Just as e-mail has become an electronic replacement for a pen and paper note, electronic billing, the paperless automation of sending the bill to a client, is becoming an alternative for generating a detailed paper invoice. Most of the time, however, no real bill actually is sent. E-billing is more of a process for sharing data between a law firm and a client. If your firm is not submitting electronic bills, chances are you are using some kind of software to generate bills before printing them out on paper and snail mailing them to the client — an extra and unnecessary step.

E-Billing for the Customer

As with many of the technologies inspired by the Internet, e-billing is full of claims promising efficiency, faster payment and seamless integration with current practices and software. And while there are many success stories, there are just as many frustrations that bog down those promises.

The International Legal Technology Association (formerly LawNet) 2004 E-Billing Survey reported that 99 percent of the responding law firms were using some sort of e-billing process. Thirty-six percent had between one and five e-billing clients, 44 percent had between six and 15, and 20 percent had 16 or more. The numbers have risen throughout the past few years, and they will continue to rise in the future.

The single most important reason law firms embrace e-billing is because clients demand it. This type of request from a client should be easy enough to handle. After all, they pay the bills and the legal team should accommodate them whenever and however

possible. However, even a cursory examination of today’s customary e-billing practices reveal a multitude of glorious advantages for clients, with minimal benefits for law firms. Instead, the lion’s share of the burden is placed on law firms.

When an e-billing system or relationship is established, clients immediately enjoy the blessings of improved efficiency and detailed oversight of legal bills. Before e-billing, a client easily could spend hours or even days laboriously combing through paper invoices and bills. With e-billing they can generate a myriad of reports and statements based on electronic data submitted by the law firm with the click of a mouse. This allows clients to swiftly pinpoint questionable charges and irregularities that might easily have been overlooked on paper bills.

Is It for Everyone

One might suspect that only larger clients and larger law firms have to succumb to e-billing, but it’s creeping into all levels of the legal world. Even corporations that have a single attorney on staff are drooling at the efficiency boosts they see from e-billing. Not only does it help them better manage the various outside law firms that invariably work for the company, but corporate counsel now can generate streamlined reports that show a chief executive officer or a director’s board exactly where money gurgles out the door on extravagant legal fees. Likewise, big and small firms are skeptically exploring the elusory world of e-billing. Bigger firms obviously enjoy more help in the form of fully staffed accounting and technology departments, but e-billing has become a way for small firms to stand out from their ominous competition.

That brings us to the most pressing issues that law firms struggle with in e-billing — expense and resources. Contrary to the nirvana-esque promises of e-billing as a way to save time and cut costs, most law firms lament that their experiences are just the opposite. To understand this requires a quick jaunt into some techno mumbo-jumbo.

Would You Like a Code With Your Standard?

In the conceptual days of electronic billing and electronic data exchange (officially known as Electronic Data Interchange), several people worked to create a set of standards upon which all e-billing could be based. Standards are important to effective communication as illustrated in proper sentence structure.

For example, if I use the sentence, “I want soup,” everyone immediately understands what I am saying. But if I do a Yoda-like twist and blurt out, “soup want I,” you can figure out what I am saying, it just might take your mind an extra second or two to juggle the sentence into the proper flow. Our conversations and literature are understood more easily when we follow a set of consistent, acceptable standards.

The same theory can be applied to e-billing. In 1994, the American Bar Association along with PricewaterhouseCoopers released a series of billing codes called the Uniform Task-Based Management System that provide consistent identifiers for billing descriptions. These codes were intended to provide a standard way of referring to timekeeper tasks so everyone immediately could recognize exactly what kind of work was done for a particular project. UTBMS codes are still used today.

However, when clients started receiving invoices with UTBMS codes, they arrived in a variety of formats. While the codes made sense, there was not a standard way of transmitting or delivering the information. So in 1998, PricewaterhouseCoopers helped develop the Legal Electronic Data Exchange Standard. LEDES provided law firms with a standardized format in which to output their billing data to clients, regardless of the time and billing software they used. This obviously made clients happy because they could receive LEDES-formatted invoices from all of their law firms. This, in turn, allowed them to compare pricing and services line for line.

Thorny Issues in the E-Billing Rose Garden

One easily could imagine that the story of e-billing could conclude after that last paragraph. If everyone agreed on the codes to be used for legal activities, and everyone agreed on the formatting of the invoices, we all could live happily ever after in the perfect world of e-billing. But alas, clients discovered the LEDES format could be tweaked to suit their own eccentric needs and started insisting that law firms do so. And since they were the clients, there was not a lot of pushback. Law firms have been generating all kinds of custom invoices and bills for clients throughout the years. One client might want something a particular way, while another client might insist on something totally different. Each client has individual expectations.

This trend didn’t change when e-billing came on the scene. In the ILTA E-Billing Survey, only 36 percent of the firms reported they had to deal with only one format for their invoices. Thirty-three percent used two formats, and the rest of the firms had to deal with three or more formats (with 10 formats being the highest).

This means someone at 64 percent of the responding law firms has to look at each invoice that is generated and determine if the format needs to be tweaked before sending it on to the client. One law firm said the actual submission of the bill then becomes a manual process, requiring someone in accounting to manipulate the data into the desired format. This is a far cry from the original idea of an automated e-billing system.

Some firms say e-billing actually adds time to their billing process rather than streamlining it. However, others say the firm does get paid quicker once a correct bill is properly submitted.

Time Spent on Billing

E-billing also has an impact on timekeepers, most notably attorneys and legal assistants. Some legal professionals don’t know or care much about how e-billing works and are content to let the billing department worry about those issues. Many firms’ timekeepers detest e-billing because it requires them to keep track of their time according to the rigid and structured UTBMS codes. While this usually can get worked out between an attorney and his or her secretary, some firms actually open up their e-billing systems to legal assistants, who can go in and edit descriptions of legal work to make sure they properly fit within the UTBMS codes. This takes the heat off the billing department, which might not have as good of an understanding of the work that was done for the client.

All of this extra work — whether it’s being done by billing clerks, secretaries or legal assistants — means resources are being used for nonbillable work. Time that paralegals have to spend on tweaking client bills is time they can’t use for other billable projects. On the other hand, when a client demands that a firm e-bill them, what does a firm say? It’s hard to refuse a client request.

Bill Me for the E-Billing System

Firms also must consider the cost of setting up and maintaining an e-billing system. All e-billing systems vary in cost structures for law firms. Some cost nothing for the firm, some charge annual fees, and others keep a percentage of the fees billed.

Serengeti Law (www.serengetilaw.com) is recognized as a leader in the e-billing industry and doesn’t charge law firms for anything. Instead, the companies that purchase the service bare the cost. This might sound a little backward, but Serengeti is a complete matter management system that includes a robust e-billing piece. Corporations and companies using Serengeti gain a clear advantage in using the sum of the available features. All that law firms have to do is log on to Serengeti’s Web site and upload invoices for clients. This works great if your clients are already set up on Serengeti, but they might not be too keen on you suggesting they invest in a whole new system, so you might be better off setting something up in your firm instead.

DataCert (www.datacert.com) charges law firms an annual fee based on the number of clients a firm is currently billing. TyMetrix (www.tymetrix.com) charges firms a percentage of the fees that they bill.

As you can imagine, the initial setup of any of these services can take time, just like any major implementation of technology or change of process will do in a law firm. The costs in time don’t end there. Once a law firm is set up to e-bill clients, the ILTA E-Billing Survey reported that setting up one brand new client on the e-billing service required an average of 76 hours of work and an out-of-pocket expense of $711. The survey reported the average time a firm spent on preparing and delivering an electronic invoice was 55 minutes. Even then, the survey reported 19 percent of the invoices had to be resubmitted with more people taking additional time to find and fix the problems.

All three of these e-billing services mentioned are leaders in the field, but deciding which vendor to use certainly demands time devoted to research to discover the best system for the firm and the clients. If a client already has Serengeti, the firm doesn’t have to do much to get up and running on the system. And while DataCert or TyMetrix might bring additional costs to a firm, the fact that you can offer an effective and operational e-billing alternative to your clients might add a welcome feather to your reputational hat.

Is There Any E-Hope?

At this point, you might be wondering why anyone would voluntarily elect to go down the road of e-billing. However, as stated before, you and your firm might not have a choice. If you are not already e-billing at least one corporate client, you could be doing it soon.

There are a few things you could do now to be more proactive in the e-billing arena. Many legal professionals don’t have time to do additional research over and above their legal work, but a little preparation is better than nothing.

First, it’s important to at least be conversant on the topic of e-billing. Know the major players and vendors in the industry and have a general idea of what they offer. This way, if you have an opportunity to be involved in the selection of an e-billing vendor — whether with your firm or a client — you will be ahead of the game.

Second, make sure you are familiar with a client’s e-billing needs. It’s easy to think that e-billing should be done by the accounting department, but it only reports what timekeepers give it. It’s important for the timekeepers themselves to be aware of how to properly invoice their time and UTBMS codes so there is less work on the administrative side — both at the firm and for the client. In this respect, you could become the “champion” of e-billing at your firm or the “go-to” person when attorneys and other legal assistants need help with entering their time properly. The more you can talk about the benefits of e-billing, the easier it will be for people to believe in your vision.

Once you have people on board the e-billing wagon, it potentially could become a marketing tool for your firm. If your firm can confidently handle an e-billing request, or even help a client set up an effective e-billing system, your firm could earn high marks, and a lot of respect. And that is what it’s all about anyway — making sure the client is happy.

Once an e-billing system is up and running, it’s imperative that all staff members are trained how to adequately bill time and be consistent. Things change and even a small change could evolve into a big problem if electronic bills are repeatedly returned.

It’s also important to have the client trained. The closer a member of your firm’s accounting department can work with clients on their e-billing systems, the stronger the relationship with the client can become. Look at it from the perspective of helping them, rather than having to conform to their e-billing requests.

Don’t Fear the E-Bill

Even with all of the issues and hurdles that swirl around e-billing, it’s inevitable that your firm will engage in some type of e-billing system in the near future. Why would any client want to continue to accept bulky paper invoices when they can be set up to streamline the process on the computer, and gain valuable insight into a law firm’s billing practices? From a client’s perspective, e-billing is a big win. And while law firms might still be struggling to come to grips with the new technology and innovative demands on their “old way” of doing things, they will succumb because the client will demand that they do so. Woe to the law firms that refuse to change, and praise to those that boldly take on the e-billing challenge and rise to the occasion.

Brett Burney is the legal practice support coordinator for Thompson Hine in Cleveland, Ohio. Burney also authors a monthly legal technology column for LLRX.com, and is a regular contributor to Law Office Computing magazine. His e-mail address is [email protected].