Every quarter we report on law firm financials and every quarter we see some kind of milquetoast improvement — revenues up, expenses up just a shade less, demand down, confidence… meh. One factor in every one of those reports is the collection and realization rate, the figure that explains the gap between billing the time and getting the check from the client. For years, we’ve chalked up low realization to a combination of attorney laziness and the disconnect between lawyers as practitioners and lawyers as businesspeople. But perhaps the real culprit in keeping firms waiting on their money is the out of control in-house legal department.
The Association of Legal Administrators and Bellefield Systems released a report last week on the nature of outside counsel guidelines and examining how firms deal with getting all their bills in. It’s not a surprise that in-house counsel are trying to keep bills low — that’s a given. Nor is it a surprise that legal departments internalize more work than ever to manage spend. But what receives less attention in the world of billing is the Byzantine guidelines clients concoct to delay paying the bills they owe.
And these delays can be significant:
Invoice rejection is universally experienced and varies by degree. Most firms experience 5-10% of e-bills getting rejected or reduced (43.24%). Almost a quarter of firms experience 11- 20% of e-bills getting rejected or reduced (21.62%). Over one third of firms (35.81%) experience 21% or greater of e-bills getting rejected or reduced.
15% of firms do not appeal rejections either because of lack of staffing power or writing off as a cost of doing business.
The report tells us that 88.83 percent of firms receive outside counsel guidelines from clients but 25 percent of firms have no process to synchronize their work with these guidelines and around 63 percent only have an ad hoc process for doing so. That’s unfortunate because there is zero effort to harmonize guidelines and every client creates their own inane rules for billing compliance. These rules can be as arbitrary as “don’t use X word in your descriptions even if we all know you’re doing X” with the result being an outright rejection of a monthly bill.
In addition to lack of staffing to handle client guidelines, the majority of firms feel that OCG are simply too complex as their top compliance challenge (66.04%), and nearly half report that they are simply too long with too much info, and they didn’t read them (43.4%).
On the one hand it’s amusing to see corporate attorneys hoisted by the petard of their own onerous quasi-adhesion contract language that no one really reads, but that’s no justification. The clients might say that they have enterprise-specific, nuanced needs that they want counsel to address. Oh, come on! You are not a beautiful or unique snowflake. You’re a random company in need of attorneys willing to tell you what they did and for how long. Get over yourselves.
Note that I said clients might say that. In this case, “might” is doing a lot of work because clients seem pretty comfortable just admitting they’re trying to force a write-off.
In 2019, clients are now pulling back on outside counsel spend and the overwhelming majority (81%) report utilizing Outside Counsel Guidelines as one of the most effective tools for controlling costs.
Firms lack the staffing to stay on top of all of this and attorneys lack the time to learn how to comply with every client under the sun. While that may save some money today, it’s not an effective long-term strategy because eventually firms will staff up and just pass the cost on to clients — congratulations on just making everything more expensive!
In the meantime, one thing firms can do to avoid getting hung out to dry by outside counsel guidelines is consider Bellefield’s own product. Their iTimeKeep system is set up to provide compliance guidance at the point of time entry. Basically, if you’re writing a description that violates the guidelines programmed into the system it’ll let you know right then and there. Frankly, clients should probably be demanding firms get this system before a bunch of admins get hired.
That might be a pretty smart guideline to add.
Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.