ROLLING THE DICE: WHY RELYING ON A/P AND INVOICE APPROVAL SOFTWARE IS A DANGEROUS GAME FOR YOUR LEGAL DEPARTMENT WHITE PAPER

Transcription

1 : WHY RELYING ON A/P AND INVOICE APPROVAL SOFTWARE IS A DANGEROUS GAME FOR YOUR LEGAL DEPARTMENT WHITE PAPER

2 ROLLING THE DICE: WHY RELYING ON TRADITIONAL A/P SOFTWARE REPORTING IS A DANGEROUS GAME FOR YOUR LEGAL DEPARTMENT One of the main jobs of corporate law departments is to hire and manage outside vendors that are very different from other vendors law firms. Effectively tracking vendor legal matters and spending are of the utmost importance to efficiently managing even a small legal department. Accounts payable (A/P) software can report on some basic spending categories, but is unable to track vital data that is necessary for the legal department to project and report on the true value it provides. That said, it is startling how many legal departments rely on their organization s A/P software, often in conjunction with a spreadsheet, when attempting to track their spend. A legal department and other departments within a company may believe that legal spend is already being adequately tracked with current A/P and nonlegal invoice approval systems, but this thinking is wrong and those departments need to understand why. There are clear reasons why a legal department needs legal ebilling, invoice approval and matter management software as opposed to just A/P software and general invoice approval software, as thousands of legal departments have already discovered: 1) What A/P software can do (tracking spending and reports), it does poorly because it misses essential data that is critical to the effective management of a legal department; 2) Legal ebilling, matter management and invoice review software provides additional functionality and capabilities beyond what A/P software and nonlegal invoice review software can do that save time and money and that are essential to the management of legal work and spend for the legal department. I. A/P SOFTWARE DOES NOT CAPTURE AND REPORT DATA THAT IS CRITICAL TO THE EFFECTIVE MANAGEMENT OF THE LEGAL DEPARTMENT For the legal department s purposes, reports from A/P software are insufficient, incomplete and not granular enough. This is not due to faulty A/P software, but due to the fact that analyzing legal invoices is a unique process and A/P software simply isn t up to the task. Modern software as a service (SaaS) legal solutions allow legal bills to be entered using a 1998B LEDES format the industry-wide standardized electronic format for legal invoices. By requiring law firms and vendors to submit their invoices in the LEDES format, your spend system will automatically capture all of the useful data in a legal invoice, such as what was done, who did the work, what it cost, staffing levels and categories of expenses. This is data that simply cannot be captured by any A/P software. Because of A/P software s inability to process the details of legal invoices, the legal spend being reported is woefully incomplete and opaque. Furthermore, even if the legal spend were complete, it is not detailed enough to be actionable for the legal department. Finally, putting aside the inaccuracy and lack of useful detail from A/P reports, because legal spend often spans across many cost centers and business units, getting the full legal spend report can be difficult to impossible using A/P software. Why A/P software is not enough for a legal department: The data is incomplete. Reviewing legal bills is inefficient. The legal department cannot categorize or dissect legal spending. The legal department cannot track savings attributable to the law department s efforts. The legal department does not have control over the reporting process. Legal SaaS solution functionality produces savings that a legal department cannot get with A/P software: Budgets for matters and tracking real-time spend to budget information no more spending surprises. Billing guideline violation alerts in the invoice with the ability to reduce expenses to guidelines immediately. Tracking attorney rates, rate increases and matter staffing no more surprise rate increases or bill churning. Track invoices from submission until payment so there are no lost invoices. This allows legal departments to negotiate and consistently receive early pay discounts and keeps the relationship with outside counsel strong. Time is money. SaaS solutions save tremendous amounts of time in reviewing, routing and paying invoices, as well as time saved running reports, getting accruals, status reports and reviewing timekeeper rates. This can total several thousand hours per year of time saved, or 1 to 3 people in headcount. 2

3 RECENT DEVELOPMENTS IN LABOR AND EMPLOYMENT LAW 2012 ROLLING THE DICE a. A/P software does not report complete legal spend There are several reasons that A/P software cannot report accurate legal spend. With regard to legal invoices, A/P software suffers from a problem of miscategorization of fees and expenses, making the spend that it can report incomplete. Invoices for payment of claims or settlements are simply considered part of legal spend in A/P software, skewing the legal spend numbers. Additionally, A/P software often lumps law firms in with professional services or consultants. For example, an IT consultant hired to clean up your document management software may be considered a legal vendor along with law firms, making the overall outside counsel spend report misleading. Furthermore, if in-house attorneys are looking for up-to-date legal spend, they will not get it from the A/P system. Invoices in the mail, currently in the approval process or sitting in a stack waiting to be entered into the A/P system are not reportable. If there are budgets being tracked for matters, it is essential to have the spend be accurate so an over-budget matter can be flagged. Manual data entry into A/P software can lead to additional inaccuracies as well. With a legal SaaS solution, the bill is reportable as soon as it s submitted by the law firm, so the spend is always up-to-date and accurate, reducing invoice and budget suprises. Approved invoices can also be automatically routed into A/P software, eliminating data entry mistakes. The SaaS system saved POET s A/P department time, according to Tirrel, because there was no more data entry for each invoice and accounting doesn t have to decipher an invoice to determine which entity should pay for an invoice because legal assigns the GL codes, when they open a matter and their software automatically codes every bill. Another common issue for international companies or companies that have had recent mergers is that they have multiple A/P systems, further compounding the reporting inaccuracies. Nielsen Business Media, Inc. the global leader in measurement and information has acquired many companies over the years resulting in the use of multiple A/P systems simultaneously. It became a real problem because we couldn t tell who was managing matters; there was no way to look at the overall workload and know how much we were spending on a particular matter or even by a particular entity with the company, said Bob Engel, manager of Nielsen s legal department. Because of all these various complications with their A/P software, Nielsen simply wasn t able to report across the global enterprise until it put all its legal matters and spend on a legal SaaS solution. b. A/P reports are not detailed enough to be useful to the legal department Even if the legal spend from an A/P system were accurate, A/P software is incapable of providing the detailed legal spend management data that legal departments need. Dissecting legal spend is essential for a legal department to be able to comprehensively review, understand and report on spend and their legal matters. SaaS solutions allow in-house counsel to review and make specific changes to attorney hours, fees and expenses directly in the invoice. These invoices also can be scanned and automatically flagged if expense guidelines for things such as travel and copying charges and agreedupon attorney rates are exceeded, something A/P software cannot do. Invoice profiles show how the matter is staffed and monitor how much each attorney has billed. This level of tracking and automation makes legal invoice review vastly easier and more efficient for in-house counsel. In fact, Nielsen reports that by monitoring their fees, expenses and matter spending through an SaaS solution, it was able to save over a million dollars in fees a year, says Engel. 3

4 Legal departments must also be able to categorize spend by matter, business units, law firms, matter types (litigation, transactional, etc.) or lead in-house attorney to effectively manage the legal department s workload and its decision-making process. For example, a general counsel may want a report on employment matters involving discrimination claims by business unit, so that he or she can see where training is needed, or to run a report on matter type spending to see where the greatest percentage of the department s spend is going in order to determine if more work should be brought in-house. These types of reports are simply invaluable tools for a GC managing a legal department and cannot be created using only A/P software. Furthermore, law departments, like all divisions within a company, are now asked to justify their spend and show efficiency in a demonstrable way. Savings, whether through reductions to invoices, attorney rates or alternative fee arrangements (AFAs), can t be tracked through A/P software, which only tracks the total spend number. In a legal SaaS solution using LEDES invoices, a report showing the savings from all the negotiated fixed-fee matters can easily be run, along with reports showing expense reductions by expense type, marked-down hours and timekeeper rate reductions. Because managing outside counsel can be such a large portion of a law department s job, the ability to demonstrate the value and savings to upper management is a business necessity that A/P software simply can t provide. Nielsen s Engel reports that by using a SaaS solution, I can build a report that I can give to the finance person for our company code. That was not possible before. A/P couldn t get to that level of granularity, and that is what s driving our legal fees. Furthermore, reporting at a matter level was functionally impossible, said Engel. Before buying an SaaS solution, alternative-energy company POET received reports from A/P that didn t include any detail, and spending couldn t be attributed to certain matters without the burdensome process of reviewing all the paper invoices. It was impossible to know where the majority of work was being done so the company could properly allocate internal resources to matters. POET s legal department now knows what each matter costs at any time and can tell in a matter of minutes where spending is increasing and understand why the spending increased by running reports out of its SaaS system, says Senior Paralegal Brenda Tirrel. c. Reports can be difficult to get from A/P As a practical matter, simply getting a report from the A/P department can be extremely time-consuming. This process can be long and require multiple steps and may even require multiple approvals from other departments. Nielsen s Engel says that in the past it could be a real nightmare when he tried to pull a report from his A/P system. With Nielsen s SaaS solution, Engel states that he can do reporting down to whatever nittygritty detail that you want, when you want it, and literally produce a report with a couple of keystrokes reports that used to take hours or even weeks to generate. With a legal SaaS solution, in-house counsel can run reports themselves in real time and get exactly what they want, rather than go through a time-consuming process to get a report from A/P. 4

5 II. LEGAL DEPARTMENTS NEED FUNCTIONALITY AND EFFICIENCY THAT ONLY A LEGAL EBILLING AND MATTER MANAGEMENT SAAS SOLUTION CAN PROVIDE In addition to the difficulty of getting timely, detailed and complete reports, A/P software lacks many essential department management functions that legal department SaaS solutions can provide. These functions include managing attorneys hourly rates and billing guidelines, tracking savings produced by the efforts of the legal department, and quickly routing invoices for approval and payment. This type of law departmentspecific software also provides an entire array of other matter management modules and functionality well beyond what A/P software is capable of, that allow the legal department to work more efficiently and productively with its outside counsel and save the department money. By monitoring their fees, expenses and matter spending through an SaaS solution, Nielsen was able to save over a million dollars in fees a year, says Engel. a. Outside counsels hourly rates and billing guidelines can be managed Another key for managing cost for many legal departments is managing billing guideline violations and outside counsels hourly rates. It is one thing to have billing and expense guidelines for outside counsel, it is another to actively enforce those guidelines. As mentioned earlier, legal SaaS solutions allow for automatic flagging of guidelines violations and quick reductions back to the guidelines directly in the invoice. Additionally, while hourly rates may be negotiated with law firms, given the time constraints on inhouse attorneys, violations of hourly rate guidelines are unlikely to be caught without software that tracks rates and alerts in-house counsel when these rates have been increased. We reduced the amount of time required to review each invoice because we can now quickly review attorney rates and compare to our billing guidelines to make adjustments, said Tirrel. Companies can benchmark rates to see if what s being paid to a company s outside counsel is in line with what other companies are paying. These rates are compared across geographical areas and firms of different sizes so a legal department can put work with the right attorneys at the right hourly rate. This is Big Data for legal departments powerful, real-time data at your fingertips that s here, now. A/P software does not have any of this type of benchmarking capability or workflows. These types of analytics give legal departments invaluable information to use when negotiating rates and deciding how to allocate work to their firms. b. Both the legal department and A/P department save time Additionally, a legal department SaaS solution can save time for everyone involved in the invoicing process, including the A/P department. Approvals can be automatically routed and tracked through the legal department, greatly reducing the amount of time it takes to approve invoices. There is never a question as to where an invoice is in the approval process. A report can be run in seconds to let the administrator know who is sitting on an invoice or whether the invoice has been sent to the A/P department. POET saved a tremendous amount of time because it no longer had to sort and review boxes of paper invoices and then route them for approval each month. The efficiency of reviewing invoices online has been huge, stated Tirrel. 5

6 RECENT DEVELOPMENTS IN LABOR AND EMPLOYMENT LAW 2012 ROLLING THE DICE These systems often can be configured so that the A/P department can have all approved invoices loaded into its A/P software at once, saving a great deal of time and eliminating possible human error when manually entering the invoice data. The SaaS system saved POET s A/P department time, according to Tirrel, because there was no more data entry for each invoice. Furthermore, the ability to more quickly process and pay invoices can result in savings from negotiated early pay discounts of 2 to 15 percent from law firms 1, which more than pays for the system and strengthens relationships with outside counsel. Accruals can also be required to be entered into this software directly by law firms. Without this software, the process of getting accruals usually means calling or ing law firms and asking for their accruals, then tracking them in a spreadsheet. If accruals are required of a legal department by finance, this functionality saves an enormous amount of time, and is something that A/P software clearly cannot do. c. Matter management functionality provides vital tools for managing an efficient legal department All of these outlined benefits only represent invoice processing and basic reporting functions provided by legal department SaaS solutions. This type of software also allows a legal department to connect directly with its outside counsel. In-house counsel can leverage this connection to send and receive matter-specific information efficiently by providing matter and workload management functionality, which includes budgeting, accruals, detailed custom reporting, rate benchmarking and analytics, event alerts, document management and law firm status reports, all of which can be consolidated, tracked and reported on in one place. Managing a legal department s workload also includes tracking internal matters so that resources can be properly allocated as well. This functionality allows Nielsen to get a report of everything our U.S. attorneys are working on and rearrange the coverage level of attorneys and outside counsel retained, based on these reports, according to Engel. This collaborative matter management functionality is as important to managing a legal department as accurately tracking and reporting on spend, and it is functionality well beyond anything other software at a company can provide for the legal department. Nielsen s Engel reports that by using an SaaS solution, he can build reports that he couldn t get before and A/P simply couldn t get to level of granularity needed to find out what was driving their legal fees. Furthermore, reporting at a matter level was functionally impossible, making it extremely difficult for the legal department to get their arms around its matters. III. NONLEGAL INVOICE APPROVAL SOFTWARE IS NOT SUFFICIENT FOR LEGAL BILLS The workflow of nonlegal invoice approval and routing software is often similar to routing paper invoices but with a PDF of the bill and requiring that all of the invoices be scanned into the system before the approval process can begin. This creates a significant time burden on the A/P department and others that need to scan each invoice into this software. Because these invoices are not in a LEDES format, attorneys cannot easily make reductions, split expenses from fees or flag billing violations as with a legal SaaS solution. Furthermore, the legal department cannot get instantaneous reports on where an invoice is in the approval process or quickly look up approval dates when law firms call wondering when they are going to receive payment. 1 ACC/Serengeti Managing Outside Counsel Survey, 10th Ed. 6 6

7 With an SaaS solution, law firms, not the company s staff, enter the invoices in the system. Law firm time and billing software automatically generates these LEDES invoices, so it is a quick process on the law firm side. The invoice data can then be analyzed, put into custom approval routes controlled by the legal department, and have real-time reporting capabilities, making the process vastly more efficient. Again, billing guidelines are flagged so no violations for unauthorized fees, fee increases or expenses slip by unnoticed. This functionality alone generally saves a legal department more than the cost of the SaaS solution. So while there may be a nonlegal invoice approval process in place for an entire company, the particular needs of the legal department invoicing process require an SaaS solution with ebilling and invoice approval capabilities developed specifically to meet those needs. IV. CONCLUSION All legal departments using SaaS solutions have A/P software. These departments bought and continue to use this software because it is vital to run an efficient legal department, and the huge ROI of the system justifies the additional cost. While the invoice processing and reporting capabilities of most A/P software and nonlegal invoice approval software may be sufficient for many business units within a company, a well-run legal department demands something more. The need for granular and accurate reports specific to the legal department, customizable approval and review processes, managing outside counsel s hourly rates, and the various other matter management tools that a legal department SaaS solution can provide simply can t be replicated by A/P software or nonlegal invoice routing software for a legal department. Law departments using only an A/P system are wasting time and money that could directly go to the company s bottom line Thomson Reuters L /5-13