Effectively tracking vendor legal matters and spending are of the utmost importance in 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. 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 in regards to legal department needs 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.
For the legal department's purposes, reports from A/P software are insufficient, incomplete and not granular enough. 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.
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. 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.
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. Approved invoices can also be automatically routed into A/P software, eliminating data entry mistakes. 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.
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 are violated, something A/P software cannot do. Invoice profiles show how the matter is staffed and monitor how much each attorney has billed.
Legal departments must also be able to categorize spend by matter, business units, law firms, matter types or 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.
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. 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.
Outside counsels' hourly rates and billing guidelines can be managed. One key to managing outside spending is managing law firms' hourly rates. While hourly rates may be negotiated with law firms, given the time constraints on in-house 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. Companies can also benchmark rates to see if what's being paid to outside counsel is in line with what other companies are paying. This is Big Data for legal departments – powerful, real-time data at your fingertips that's here, now and is well beyond the functionality of A/P software.
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.
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. Accruals can also be required to be entered into this software directly by law firms instead of calling or emailing law firms and asking for their accruals and then tracking them in a spreadsheet.
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.
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.
With a SaaS solution, law firms, not the company's staff, enter the invoices in the system. Law firm time & billing software automatically generates these LEDES invoices, so it is a quick process on the law firm side. The invoices 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.
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.
Patrick Johnson, JD, is currently a Senior Marketer for Legal Tracker Law. As a four-year veteran of Thomson Reuters, Pat previously served as a Client Relationship Manager where he managed a portfolio of more than 170 corporate law department clients using Legal Tracker's matter management and e-billing system, as well as conducting trainings and seminars nationwide on the best practices of the top legal departments worldwide. A graduate of University of Virginia School of Law, prior to joining Legal Tracker, Pat served as a corporate attorney for five years. Prior to law school, he worked as an IT consultant and financial analyst in California.