Basics Revisited: Making the Transition to E-billing

Many large institutional companies require that invoices be submitted electronically over the Internet. Most of these clients contract with third-party clearinghouses to handle the exchange of data.

Once any initial issues such as attorney denial are overcome, the next hurdle is obtaining a client-generated matter number. Procedurally, these numbers should be given at the beginning of the engagement. If they're not, they have to be hunted down later. Without a client-generated matter number, an invoice will be rejected when submitted.

The next step is to contract with the third-party vendor who is processing legal bills. Numerous vendors provide these services (see sidebar).

A few operate free of charge, but most have a subscription fee. Annual flat fees can be as much as $3500 per client per year. Others may deduct 1% to 2% of the invoice amount. Typically, the law firm has to pay the fee and cannot pass this cost on to the client.

(Editor's note: A&FP has previously editorialized against percent-of-invoice charges.)

File Formats

Electronic submission requires that all invoices be submitted in an acceptable format. Most in-house legal departments require the LEDES 1998B format. (LEDES stands for Legal Electronic Data Exchange Stan-dard.) This format is monitored by the LEDES Oversight Committee, a voluntary body representing law firms, software vendors and in-house legal departments. The goal is for LEDES to be an open standard that is not biased towards one particular group of organizations.

The LEDES 1998B format is presented in ASCII text with pipe-delimited fields (ie, fields separated by the '|' character). Individual modifications for each new client are sometimes necessary but normally don't diverge significantly from the existing format.

(Editor's note: The newer XML-based LEDES 2000 standard has yet to supplant LEDES 1998B. A&FP detailed both formats back in September 2003. Proposed improvements to LEDES 2000 as well as a proposed e-billing International Standard will be voted on by the LEDES Oversight Committee in January 2006. See www.ledes.org for details.)

Other Requirements

Most invoices submitted electronically require the use of task and activity codes. Task codes enable the firm and the client to budget and monitor cases for each phase of the engagement.

For success in electronic billing, you must know the requirements of each client and third-party clearinghouse. Once an e-invoice is in full compliance with respect to the LEDES template, third-party clearinghouses further audit the bill for compliance with the client's outside counsel guidelines. For example, an invoice will be rejected if the client's negotiated rates are exceeded by a paralegal's bill or a photocopy rate.

Not Just a Burden

Why should our law firm pay a third party for the privilege of asking our clients to pay for legal services rendered?

In our experience, when invoices are processed electronically, the clients pay faster. Clients who had typically paid their invoices in 90 days are now paying within 30 days.

Also, some third-party clearinghouses will allow you to view the client's workflow. You can easily see if in-voices are still being reviewed by in-house counsel, held up for questioning or waiting in accounts payable for payment; you can also see if a check really is 'in the mail.'

The Future

Currently, only large companies have required us to implement electronic billing. However, as the procedure becomes more commonplace, it will be adopted by smaller entities.

E-billing is here to stay. For the client, e-billing enables closer engage-ment monitoring, ensures compliance with outside-counsel guidelines and forces attorneys to be more cost effective. For outside firms, invoices no longer get lost and payment turnover cycles are reduced.

[IMGCAP(1)]

Scott Wirtz is the Controller of Loeb & Loeb, based in Los Angeles. This article has been condensed from the author's article on Law.com Technology.

Many large institutional companies require that invoices be submitted electronically over the Internet. Most of these clients contract with third-party clearinghouses to handle the exchange of data.

Once any initial issues such as attorney denial are overcome, the next hurdle is obtaining a client-generated matter number. Procedurally, these numbers should be given at the beginning of the engagement. If they're not, they have to be hunted down later. Without a client-generated matter number, an invoice will be rejected when submitted.

The next step is to contract with the third-party vendor who is processing legal bills. Numerous vendors provide these services (see sidebar).

A few operate free of charge, but most have a subscription fee. Annual flat fees can be as much as $3500 per client per year. Others may deduct 1% to 2% of the invoice amount. Typically, the law firm has to pay the fee and cannot pass this cost on to the client.

(Editor's note: A&FP has previously editorialized against percent-of-invoice charges.)

File Formats

Electronic submission requires that all invoices be submitted in an acceptable format. Most in-house legal departments require the LEDES 1998B format. (LEDES stands for Legal Electronic Data Exchange Stan-dard.) This format is monitored by the LEDES Oversight Committee, a voluntary body representing law firms, software vendors and in-house legal departments. The goal is for LEDES to be an open standard that is not biased towards one particular group of organizations.

The LEDES 1998B format is presented in ASCII text with pipe-delimited fields (ie, fields separated by the '|' character). Individual modifications for each new client are sometimes necessary but normally don't diverge significantly from the existing format.

(Editor's note: The newer XML-based LEDES 2000 standard has yet to supplant LEDES 1998B. A&FP detailed both formats back in September 2003. Proposed improvements to LEDES 2000 as well as a proposed e-billing International Standard will be voted on by the LEDES Oversight Committee in January 2006. See www.ledes.org for details.)

Other Requirements

Most invoices submitted electronically require the use of task and activity codes. Task codes enable the firm and the client to budget and monitor cases for each phase of the engagement.

For success in electronic billing, you must know the requirements of each client and third-party clearinghouse. Once an e-invoice is in full compliance with respect to the LEDES template, third-party clearinghouses further audit the bill for compliance with the client's outside counsel guidelines. For example, an invoice will be rejected if the client's negotiated rates are exceeded by a paralegal's bill or a photocopy rate.

Not Just a Burden

Why should our law firm pay a third party for the privilege of asking our clients to pay for legal services rendered?

In our experience, when invoices are processed electronically, the clients pay faster. Clients who had typically paid their invoices in 90 days are now paying within 30 days.

Also, some third-party clearinghouses will allow you to view the client's workflow. You can easily see if in-voices are still being reviewed by in-house counsel, held up for questioning or waiting in accounts payable for payment; you can also see if a check really is 'in the mail.'

The Future

Currently, only large companies have required us to implement electronic billing. However, as the procedure becomes more commonplace, it will be adopted by smaller entities.

E-billing is here to stay. For the client, e-billing enables closer engage-ment monitoring, ensures compliance with outside-counsel guidelines and forces attorneys to be more cost effective. For outside firms, invoices no longer get lost and payment turnover cycles are reduced.

[IMGCAP(1)]

Scott Wirtz is the Controller of Loeb & Loeb, based in Los Angeles. This article has been condensed from the author's article on Law.com Technology.