5 Items To Consider When Evaluating An Electronic-Invoicing System For Your Outside Law Firms

By 000983 – May 26, 2010

Do you really want to review legal bills the old fashioned way?

In my last post, 10 Key Steps To Managing Court Reporting Costs, I wrote about the benefits claims organizations are experiencing when implementing a national court reporting program. Today I’d like to review several key concepts to consider when implementing an e-billing system to improve the management of legal invoices.

Estimates vary, but by most accounts roughly 30% of P & C claims organizations have put some kind of e-billing platform in place. Now, as prices have decreased and law firm utilization expanded, these solutions are easily accessible by claims organizations of all sizes, including those with very low legal expenditures.

How does electronic bill review work?

For those not aware of how these e-billing platforms work, law firms create their invoices in their own time and billing software, convert these invoices a standardized file structure, and upload their invoices into an e-billing platform that then makes the invoices available to the invoice reviewer. By using standardized codes for different tasks and expenses, the software platforms can “flag” or highlight certain line items that might be inconsistent with an organization’s billing guidelines. Reviewers can then take action as desired.

When looking for such a solution, you must first think about your overall objective. Is it primarily to reduce legal costs? Is it to improve the budgeting process? Is it to increase internal efficiencies? Or, is it to create metrics and analytics about law firm performance?

Here are 5 key items to consider when selecting an electronic invoicing system

1. Do not Assume Law Firm Push-back!
   A common question I get from executives in smaller claim departments is, “Will this send the wrong message? We have a trusting relationship with our law firms.” Great! Then use a system to create more metrics, improve internal efficiencies, or to create more accurate budgets. Don’t use the system to reduce costs if that is not your priority. Use a system to give firms real-time status on invoice payment, or even faster payment itself. Do not assume that law firms will push back on these initiatives. You will find that 70-80% or more of your firms are using an e-billing system for other clients – just not for you.
2. Centralized vs. De-Centralized Review Process
   The primary factor in savings levels will be whether you create a centralized review process or leave invoice review to front-line professionals. Both are fine. The results are very different. On average, centralized units tend to adjust invoices by 5-8% range, whereas a more traditional decentralized review processes tend to stay in the 3-5% range.  The reasons for this are as you would expect: centralized reviewers simply review more invoices, learn better what to look for, and develop a broader industry view. Simply put, practice makes perfect.
3. Consider Using External Expertise in the Invoice Review Process
   Smaller claims organizations who understand the value of a centralized process may not have sufficient legal spend (or the desire) to justify the creation of a centralized invoice review role.  John Conlon, whose firm puts out an extremely well-respected newsletter on legal spend management, suggests that a central reviewer can manage $7MM – $15MM in legal invoices annually, depending upon case complexity.  Organizations that don’t have the desire to hire, develop, (and retain!) such staff might consider using an e-billing company who can offer such services as part of an overall package. Such external services can be used as a first review, leaving the claims organization in complete control.
4. It’s About the Reporting!
   What your organization can get out of the system is as important as what you process through it. Ad hoc reporting and business intelligence is key. Make absolutely sure that all the data that goes into the system can tell your executive team an important story. Put every potential platform through its paces. Spend as much time (maybe more!) in understanding reporting capabilities as in examining invoice workflow.
5. Above All, Keep it Simple
   These systems are designed to simplify processes, not make them more complicated. Pick a platform that has a demonstrated track-record of supporting organizations of your spend level. Look for an easy interface, an intuitive workflow, and a non-complicated implementation process. You want a quick, hassle-free, almost turn-key solution.

While there are a myriad of other factors to be considered, keeping these five at the forefront will help to ensure that you align your expectations and your ultimate results.

Have you implemented an electronic billing solution? Let us know how its working out.