The legal profession is inundated with redundant tasks that detract from efficiently using resources and ultimately generating revenue. Time entries, invoice review and approval, management of subordinate lawyers, and even legal research can all be improved with automation.
Approximately 23 percent of an attorney’s activities and 69 percent of a paralegal’s activities could be automated using current technologies, according to McKinsey Global Institute. These tasks can be automated, allowing for attorneys and paralegals to focus on more value-adding activities such as client satisfaction and marketing.
The COVID pandemic has shown all of us the power of technology in solving challenges including the legal field from how to work from home to helping clients through secure platforms and applications. It’s time for the legal profession to further embrace and implement automation to better capture time and money.
The Current State of Billing Practices
Law firms have seen a steady decline of collection and realization rates. There are several overarching reasons for this decline: more cost-conscious clients, increases in hourly rates, and administrative inefficiencies.
Since the 2008 financial crisis, clients have been exceedingly mindful of expenses, looking closely at their legal expenses. The COVID pandemic and related economic downturn has reversed any relaxation of that financial vigilance with many financial leaders expecting double-digit revenue declines. And according to Clio’s 2019 Legal Trend Report, 14 percent of all hours invoiced are never even paid.
Some firms may look to combat this reduction in revenues by raising hourly rates. However, according to a Georgetown Law Report, rate increases actually lead clients to pay less of the hours billed at the higher rate. While firms that adopt this practice expect an increase in revenues, they actual see realization rates decline which precludes rate increases as a viable solution. Furthermore, attempting to convince clients to pay more for what they previously paid less for is a difficult ask and can leave the firm in an unfavorable light.
Even before considering client financial prudence and reluctance to pay higher rates, law firms have an ethical obligation requiring lawyers to ensure their bills are reasonable. Attorneys must exercise “billing judgment,” and “make a good-faith effort" to exclude charges and expenses “that are excessive, redundant, or otherwise unnecessary."
Improving Internal Inefficiencies
What law firms really need to do is look internally at inefficiencies and how they affect revenues to solve the root problem.
Non-billable tasks, late invoicing, and poor time-tracking are all issues that negatively affect a law practice. In fact, the advisory podcast The Un-Billable Hour points to these as major causes of lost revenue. According to the recent State of Legal Markets from Georgetown Law, collection and realization rates contribute to the overall trend of decreased revenues at large firms.
For smaller firms, the Clio Legal Trends Report estimates that out of a standard eight-hour workday, firms are only averaging about 1.5 hours of billable work. That’s six hours or more of unbillable work every day, or 30 hours every week. With over six hours of unbillable time, the most obvious place to start is by looking inward at how legal professionals spend their time and how to do things more efficiently.
Much of this wasted time is spent on billing and billing review – the time it takes for lawyers to review their bills for errors before submitting invoices for payment. Just tracking time can take lawyers extra efforts that could be spent on more complex and billable activities.
Additionally, tracking time is not a favorable task with many lawyers considering it a “necessary evil.”
This task is often put off until the weekend, where lawyers spend valuable time meant to relax or be with family instead consumed with recalling and tracking their tasks from the week prior.
Furthermore, lawyers who wait to enter their time can lose up to 50 percent of their billable hours through this practice. If done throughout the week time tracking can consume easily 30 minutes each day. These percentages and minutes add up, leaving considerable amounts of money on the table.
Time-consuming billing review is done not only to ensure that clients receive accurate bills and not dispute unreasonable fees, but to comply with the ABA Model Rules requiring lawyers to ensure their bills are reasonable. Attorneys must exercise “billing judgment,” and “make a good-faith effort" to exclude charges and expenses “that are excessive, redundant, or otherwise unnecessary."
Yet, a majority of law firms say that it takes them up to two weeks to clean up their invoices before they are even ready to be sent to clients, according to a 2019 Aderant survey. This necessary step of the invoicing process calls for efficiency and automation in law firms & legal departments.
In fact, the law firm consulting firm, Major, Lindsey and Africa suggest in their recent Industry Outlook report bolstering productivity and efficiency via the expanded use of technological solutions. This would allow for more time to be spent on billable tasks, thereby increasing profits.
Electronic Billing Can Be Both Boon and a Bane
As billing is necessary for a firm’s viability and requires arduous attention and precision, having an automated system to accurately and efficiently handle this task in less time with fewer errors would be worth its weight in gold.
While UTBMS and LEDES codes add another level of complexity to billing, their use makes the organization and categorization of tasks and expenses standard across all legal billing. This in turn creates greater transparency for the client when reviewing their bills.
However, this can be a huge burden for those creating the invoices. Manually coding every time or expense entry with UTBMS and LEDES codes can take precious time and is open to human errors and idiosyncrasies in coding and billing rule compliance. If the result is errors in client invoices, clients frequently will not pay non-compliance bills and charges.
Automation Enhances and Advances Law Firms
LexisNexis CounselLink’s Director of Strategic Consulting Kris Satkunas aptly states: “Legal departments should leverage the right technologies to refine and adjust workflow processes.” And when it comes to billing and billing review, automation is the answer for law firms looking to improve efficiencies and profits.
According to Thomson Reuters Legal Management Trends, it is possible to speed up billing without sacrificing accuracy using automation. In fact, automation increases speed and decreases errors, which reduces billing disputes and improves realization rates.
Furthermore, applications currently exist that can help relieve the burden of manual UTBMS code selection and LEDES formatting. Some of them can even interface with a firm’s existing billing software systems making for seamless integration and adoption.
Law Technology Today provides a list of features and administrative tasks to consider when sourcing an application to improve efficiencies including:
- Time and expense entries
- Client intake processing
- UTBMS/LEDES coding
- Invoice submission
- Invoice format conversions
- Document review
Increasing efficiencies and accuracy is not only good for law firms, but the clients. Quick and reliable work and transparent invoicing makes for satisfied clients, which in turn, is more likely to bring future work and referrals.
The impulsive reaction to declining revenues and optimization rates of raising rates is not the answer. The answer is automation. Many law firms are already taking advantage of this modern approach; don’t get left behind.
This article was first published in Lexology on 2/16/2021.