How to Use Data to Make Your Law Business Better

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This continuing trend demonstrates the ongoing problem of achieving profit increases solely through billing rate increases – that is, raising the hourly rate does little good, if the client pays fewer of the hours billed.

As a result, data-driven solutions are becoming a beacon within the legal profession. The reason is that data-driven solutions allow firms to gain real-time insights in order to make better business decisions  and improve their bottom line, without simply raising hourly rates. Nevertheless, a recent Industry Outlook report by Major, Lindsey & Africa finds that as law firms expand their use of various solutions, they often miss an opportunity to optimize profits by evaluating their own billing practices to increase profits and productivity.

This article explores how organizing billing data into a standardized system like the Uniformed Task-Based Management System (UTBMS) allows law firms and clients alike to improve their financial performance.

A Brief History of UTBMS Codes and LEDES Invoices

Since their introduction more than 20 years ago, the utilization of Uniformed Task-Based Management System (UTBMS) billing codes have allowed both clients and law firms to track and compare specific legal services and expenses and map these data points to particular outcomes.

For those who might not be familiar, UTBMS codes classify legal services and expenses performed by a law firm or other vendor.

UTBMS creates categories of specific legal tasks and expenses and assigns specific codes to such task and expense services. Associating these codes to time and expenses entries in invoices shows clients exactly where and how lawyers are providing legal services. This, in turn, allows for greater data analysis, reporting, and fact-based decision-making.

The increasing prevalence of UTBMS codes arose from corporate legal departments that were purchasing large quantities of legal services looking to closely monitor invoices and services from outside counsel and vendors. Imagine trying to make sense of legal spending bills that included only a vague description of services by multiple timekeepers in a single day, or evaluating multiple paragraphs or pages of task descriptions. 

This is the reason why the UTBMS categorization method is critical when looking at process improvements.

Without utilizing the UTBMS categorization method, it is difficult to accurately assess legal spending or to develop useful insights that rationalize outside counsel retention or legal spending decisions. 

Running the risk of making significant decisions based on inaccurate or misleading data can be devastating, but uniformly applied data standards make for more carefully informed decisions based on empirical evidence.

Whereas UTBMS billing codes categorize legal work and expenses, the Legal Electronic Data Exchange Standard (LEDES) provides uniform data formats to submit UTBMS-coded invoices.

After creating UTBMS billing code standards, the joint group began to create a standard format for the exchange of billing information known as the LEDES Oversight Committee (LOC). The LOC is “an international, voluntary, not-for-profit organization comprised of legal industry representatives and is charged with creating and maintaining open standard formats for the electronic exchange of billing and other information between corporations and law firms.”

Using the LEDES standard formats, receiving systems can electronically assemble billing tasks and expenses into more easily comprehensible formats for greater ease of review and speed of payment.

The utilization of UTBMS billing codes in standardized LEDES invoicing formats helps both clients and law firms to track and  compare specific legal services and expenses, which then map specific data points to insightful information. In other words, UTBMS codes allow “Moneyball” kinds of analyses for law firms and clients.

Billing data is readily available

Law firms and legal departments are using their existing data to predict outcomes. 

Annie Dike from Bulls Eye’s Expert Legal News noted that “legal analytics seems to take this to the next step by mining data in case dockets and filings, and then aggregating the data to reveal trends and patterns in past litigation that can be used to inform legal strategy.” 

Similarly, Case Crunch’s lawyer challenge uncovered the potential of predictive analytical tools. 

But data regarding the likelihood of certain reactions to specific arguments and testimony, myriad nuances of contract negotiations, and other aspects of legal work can be hard to quantify and use. Instead, Ed Finkel of the Illinois Bar Journal asks:

“When it comes to optimizing your practice, do you trust your gut? Don’t. If you aren’t using data to measure what works and what doesn’t, you can’t be sure you’re winning the game. The good news: your practice generates the data you need to gauge success and adjust as needed.”

By organizing and categorizing billing data with UTBMS codes, billing data can now improve common profitability metrics such as revenues, profits, realization rates, and collection rates – all directly from a law firm’s own systems.

Combining machine learning and AI with historical billing and collections data can be used to improve performance in real time and prevent non-billable and unbillable work.

Moreover, tying billing data to underlying work product allows hyper-accurate budget projections, staffing need projections, timelines, and the like. This relieves firms and their clients to better optimize how to plan, budget, and staff similar and new matters.

Implementing data-driven solutions that shorten the time needed to generate compliant invoices that are more likely to be paid is often easy to do, because these solutions utilize the law firm’s own billing records. Speeding up the invoicing process is also often the most effective way to drive increased profits per partner.

It is axiomatic that the faster a law firm can generate accurate and compliant bills, the faster the bills can be submitted for payment. Then, at least theoretically, submitting bills to clients faster should mean faster payments and improved cash flow and profitability.

The Un-Billable Hour, a law practice and advisory podcast, recommends optimizing law firm revenue by asking how many days it takes to produce a bill along with the number of days it takes to get paid. This can be done by determining a law firm’s DSO, a metric often used in the product merchandising industry.

Days Sales Outstanding (DSO) measures the average number of days it takes a company to collect payments after sales are made. The lower the DSO, the faster a company profits from its sales, which in turn ultimately indicates how long a firm’s profits will remain within current cash flow.

Attorneys are required to conduct reasonable client billing. For example, for American lawyers, “Rule 1.5 of the ABA Model Rules of Professional Conduct prohibits fees that are ‘unreasonable’.” 

In fact, the Supreme Court of the United States has held that attorneys must exercise “billing judgment”, and “make a good-faith effort” to exclude charges and expenses “that are excessive, redundant, or otherwise unnecessary”. 

Therefore, lawyers are ethically bound to review and clean up their bills before submitting them to clients for payment.

The challenges of billing entry and billing review, both of which are required to submit bills for payment, increase a law firm’s DSO.

According to The Un-Billable Hour, attorneys often lose money due to inefficiencies such as “disorganization, slow response to clients, late billing invoices and not tracking time”, which result in low productivity and low revenue. 

In this vein, legal bill review is also a significant factor driving inefficiency, despite the various billing and time tracking applications to ease the burden of time entry and bills submission. 

Some of the most prominent means of doing so are data-driven solutions to improve transparency with regard to outside counsel billing and other legal expenditures.

Technology is not a panacea. Adam Beschloss and Steven Rudnick of Inside Counsel suggest:

“While technology is requisite as an enabler for managing legal invoices, effective control rests on the creation of robust billing guide- lines and accurate data collection… factors like the development of robust billing guidelines, the strict use of UTBMS codes, and the subsequent review of every line item of every invoice for conformance to your billing guidelines are prerequisite.”

The American Bar Association (ABA) recommends a checklist to consider when analyzing outside counsel billing.

The ABA checklist factors for outside counsel to consider in controlling their legal expenditures include:

Once these prerequisites are in place, the next step is researching  the marketplace to find the most appropriate and valuable applications. With the rise of AI and machine learning technologies, companies are taking advantage of the opportunity to automatically standardize time and expense entries using their existing legal matter management and systems.

By using billing automation, in-house counsel gain the advantage of receiving standardized data from their partner law firms. In-house legal departments can now easily compare billing data from one firm to another, with accuracy and reliability never made available before.

For example, Thomson Reuters’ “Latest Trends and Best Practices  in Managing Outside Counsel” report details how automation reduces billing disagreements from standardizing the determination of exactly where invoices are out of compliance. The report further indicates that automated legal billing significantly expedites the legal billing review process, resulting in shorter review periods, controlled legal expenditures, results- and value-based decision-making, and other goals.

As such, AI and machine learning technologies are crucial to providing the capacity to drastically improve efficiency and transparency in managing outside counsel and maximizing legal expenditures.

For clients, applications like Thompson Reuters’ Legal Tracker (Serengeti), Onit’s Aptitude, LexisNexis’ CounselLink, and Wolters Kluwer’s TyMetrix 360° all offer efficient means of receiving bills from outside counsel, tracking invoices and payments, and conducting internal data analysis using UTBMS codes and standardized LEDES invoicing.

Similarly, there are various applications available to help law firms accomplish their UTBMS coding and LEDES invoice formatting needs. For example, Clio, Rocket Matter, Practice Panther, Timeslips, MyCase, and LeanLaw, along with other legal billing software and practice management systems, permit lawyers to add UTBMS codes and create invoices in LEDES formats. In most cases, these apps require users to select and apply appropriate UTBMS codes to time and expense entries from pull-down menus.

However, inaccurate UTBMS coding, frequent use of default or catch-all codes, and random or non-uniform application of billing codes can negatively impact valuable data analysis and reporting. 

When billing codes do not accurately reflect services or expenses entries, the billing codes become essentially meaningless. Applications such as Effortless EasyCodes eliminate the manual coding entirely by automating the application of codes to billing entries. Automating the process makes UTBMS codes more valuable through uniformity in code application.

Conclusion

The number of data-driven applications in the legal field is growing at  a remarkable pace.