Billing Scrutiny Creates Tension Between Firm and Client

Clients certainly appear to be in the driver's seat: With legal departments slashing spending in recent years, and demand for services taking a hit, most firms are vying for their piece of a smaller pie, so the conventional wisdom goes. Firm managers, for their part, routinely point to rate pressure as a reason for revenue declines and other headaches.

Whether all these factors have adversely affected law firm billing cycles and collection isn't entirely clear, but the underlying tension is evident.

“Think about the relationship that outside counsel has with the client,” Dunican says. “You're always going to be on bended knee when presenting your invoice. ' There's not going to be padding, because you want to be sure of continuing that relationship.”

Bill scrutiny is “always an issue,” says W. Raymond Felton, co-managing partner of Greenbaum Rowe Smith & Davis.

“I think some people ' use it as a delaying tactic,” but “I can't say that it's had a negative impact on us in terms of cycle or ultimate collection.”

In-house lawyers say they strive to be accommodating ' or at least understanding.

A New Jersey-based general counsel, who asked not to be named, acknowledged “heightened review by the lawyers in our department.”

“I certainly haven't heard any complaints from our counsel that we're paying them slower than they should be paid” ' the legal department and accounts receivable review bills simultaneously, to speed up the process ' but “I think rare is the law firm that gets paid 30 days after the month's end,” the GC says.

“If there's tension from us, it's on what we want, making sure things are staffed correctly,” the GC added. “I think we can be fairly demanding on billing, and we'll work against budgets and look for surprises.

“On the other hand, this is a partnership. ' I want them to make money. ' We don't look for free services.”

The GC called law firm billing “a little bit of a backwater in the U.S. economy at this stage.”

“I think they need to understand [that] they're a vendor, and their bills need to be understandable. ' Just in the past six months, I got a bill from a firm on a transaction that said, 'for services rendered on project blank.'”

Another in-house lawyer, James Van Horn, says his outside counsel “know exactly when they're going to get paid.”

“Part of the relationship you have with a law firm is when you pay them. ' You've got to appreciate that,” says Van Horn, general counsel of NJ-based Sun Chemical Corp.

“It's not an area of tension for us, but I could understand where it would be.”

Felton says Greenbaum Rowe has experienced some large institutional clients paying 99% of a bill only to withhold the final portion.

“You get to the point where it's not worth arguing,” Felton says. “They don't necessarily give a reason, and you just have to absorb those costs.

“It's almost as if they'll take a deduction that's so small that it's not worth fighting about. ' It's not worth the fight or the ill will. ' It's truly nickel-and-diming you.”

Meanwhile, bill scrutiny by entrepreneurial clients, though nothing new, is an even bigger factor for Greenbaum Rowe, because those clients account for a large portion of the client base, Felton says.

An increasingly common way for clients to vet bills is through e-billing software, which is typically adopted by the legal department and imposed on outside counsel.

According to software developer Serengeti, at least 880 corporations use the company's “Tracker” program, which can be configured based on the client's billing rates and rules.

The software, by proxy, is used by about 34,000 law firms and about 253,000 individual users, according to company data.

Eric Ruud, Serengeti's managing director, says law firm push-back isn't what it once was.

“I think it was a lot bigger issue a few years back,” Ruud says, adding that it's “not so much around the principle of it,” but “the technical issue of, 'How do I do it?'”

Serengeti does offer training to law firm users, he notes.

Outside counsel have an interest in getting on board, Ruud says: “The driver you have going on with the firms is, they want to get closer and closer with their clients.”

Elisabet Hardy, Serengeti's vice president of product management, says: “Today, the conversation is not just around automation ' it's a lot around spend analytics.”

Some software capabilities ' such as flagging a questionable charge on an invoice before the invoice even goes out, automated approval for certain tasks and set budgets for flat-fee matters ' stand to expedite the process.

As for timeliness of payment, Hardy pegs the ultimate onus on the firms: “I think the outside counsel will get their bills paid more expeditiously if they adhere to the billing rules.”

At Greenbaum Rowe, e-billing software has “worked very smoothly” despite some initial rough patches, according to Felton.

Dunican, however, says the 24 programs utilized by Gibbons have not made life easier: “It's the same story ' that it will help us get paid more quickly. But that's not the experience. These programs are designed to save the clients money.”

The anonymous GC, too, took umbrage with the idea that software streamlines the billing process.

“As often as not, it created confusion,” the GC said, noting that in-house paralegals familiar with the matter they're reviewing can be of greater help.

Other legal departments, particularly those attached to insurance carriers and regulated companies, might use third-party reviewers, who aren't necessarily lawyers.

John Conlon of Noblesville, IN-based Legal Points LLC says his review system supports a 30-day billing cycle.

“I'm sensitive to that ' I do all my reviews within two weeks,” he says.

Conlon acknowledged that some companies will “age” legal bills, but “most companies I work with will pay the undisputed portions” of a bill while withholding payments for others. I'm sure that upsets law firms,” but “I tell [clients], you wouldn't believe the mistakes that I see.”

“A lot of lawyers ' don't look over their bills, so they bring it on themselves. ' I've seen math mistakes in these bills.”

David Paige, founder and managing director of New York-based Legal Fee Advisors, says: “Actually, it can go either way.”

If bills receive no prior vetting before they reach outside review, the process will slow down, but to the extent bills are “floating around” in the legal department, forwarding them to the reviewer can speed it up, Paige says.

“A reasonable third-party billing operation should give the law firm a chance to correct [flagged charges],” Paige says. “They shouldn't be creating appeals to slow down payments.”

Another factor is alternative billing arrangements, which can be used as indirect ways of delaying payment, according to Felton.

Common client requests for partial contingency arrangements based on outcome and extended payment terms “absolutely” affect firm cash flow, he says.

“You'd like to think that over time, those things even out, but it's not quite that simple,” Felton says. “Obviously we have to pay our bills. ' One way or the other, the partners have to bear that burden.”

David Gialanella is a Senior Staff Reporter at our ALM sibling New Jersey Law Journal, in which this article originally appeared. He can be reached at [email protected].

When Gibbons submits a legal bill to a client, it does so through one of two-dozen e-billing programs the Newark, NJ firm is required to use, each one slightly different from the others, according to managing partner Patrick Dunican Jr.

“We have the privilege of paying for those services” ' about $2,400 per program, per year, on average, Dunican says.

Legal bill scrutiny in its many forms ' internally by legal departments, by nonlawyer staff elsewhere in the company, by third-party auditors, or via e-billing software ' has the potential to affect how and when law firms get paid, but the practical effect is up for debate.

Clients certainly appear to be in the driver's seat: With legal departments slashing spending in recent years, and demand for services taking a hit, most firms are vying for their piece of a smaller pie, so the conventional wisdom goes. Firm managers, for their part, routinely point to rate pressure as a reason for revenue declines and other headaches.

Whether all these factors have adversely affected law firm billing cycles and collection isn't entirely clear, but the underlying tension is evident.

“Think about the relationship that outside counsel has with the client,” Dunican says. “You're always going to be on bended knee when presenting your invoice. ' There's not going to be padding, because you want to be sure of continuing that relationship.”

Bill scrutiny is “always an issue,” says W. Raymond Felton, co-managing partner of Greenbaum Rowe Smith & Davis.

“I think some people ' use it as a delaying tactic,” but “I can't say that it's had a negative impact on us in terms of cycle or ultimate collection.”

In-house lawyers say they strive to be accommodating ' or at least understanding.

A New Jersey-based general counsel, who asked not to be named, acknowledged “heightened review by the lawyers in our department.”

“I certainly haven't heard any complaints from our counsel that we're paying them slower than they should be paid” ' the legal department and accounts receivable review bills simultaneously, to speed up the process ' but “I think rare is the law firm that gets paid 30 days after the month's end,” the GC says.

“If there's tension from us, it's on what we want, making sure things are staffed correctly,” the GC added. “I think we can be fairly demanding on billing, and we'll work against budgets and look for surprises.

“On the other hand, this is a partnership. ' I want them to make money. ' We don't look for free services.”

The GC called law firm billing “a little bit of a backwater in the U.S. economy at this stage.”

“I think they need to understand [that] they're a vendor, and their bills need to be understandable. ' Just in the past six months, I got a bill from a firm on a transaction that said, 'for services rendered on project blank.'”

Another in-house lawyer, James Van Horn, says his outside counsel “know exactly when they're going to get paid.”

“Part of the relationship you have with a law firm is when you pay them. ' You've got to appreciate that,” says Van Horn, general counsel of NJ-based Sun Chemical Corp.

“It's not an area of tension for us, but I could understand where it would be.”

Felton says Greenbaum Rowe has experienced some large institutional clients paying 99% of a bill only to withhold the final portion.

“You get to the point where it's not worth arguing,” Felton says. “They don't necessarily give a reason, and you just have to absorb those costs.

“It's almost as if they'll take a deduction that's so small that it's not worth fighting about. ' It's not worth the fight or the ill will. ' It's truly nickel-and-diming you.”

Meanwhile, bill scrutiny by entrepreneurial clients, though nothing new, is an even bigger factor for Greenbaum Rowe, because those clients account for a large portion of the client base, Felton says.

An increasingly common way for clients to vet bills is through e-billing software, which is typically adopted by the legal department and imposed on outside counsel.

According to software developer Serengeti, at least 880 corporations use the company's “Tracker” program, which can be configured based on the client's billing rates and rules.

The software, by proxy, is used by about 34,000 law firms and about 253,000 individual users, according to company data.

Eric Ruud, Serengeti's managing director, says law firm push-back isn't what it once was.

“I think it was a lot bigger issue a few years back,” Ruud says, adding that it's “not so much around the principle of it,” but “the technical issue of, 'How do I do it?'”

Serengeti does offer training to law firm users, he notes.

Outside counsel have an interest in getting on board, Ruud says: “The driver you have going on with the firms is, they want to get closer and closer with their clients.”

Elisabet Hardy, Serengeti's vice president of product management, says: “Today, the conversation is not just around automation ' it's a lot around spend analytics.”

Some software capabilities ' such as flagging a questionable charge on an invoice before the invoice even goes out, automated approval for certain tasks and set budgets for flat-fee matters ' stand to expedite the process.

As for timeliness of payment, Hardy pegs the ultimate onus on the firms: “I think the outside counsel will get their bills paid more expeditiously if they adhere to the billing rules.”

At Greenbaum Rowe, e-billing software has “worked very smoothly” despite some initial rough patches, according to Felton.

Dunican, however, says the 24 programs utilized by Gibbons have not made life easier: “It's the same story ' that it will help us get paid more quickly. But that's not the experience. These programs are designed to save the clients money.”

The anonymous GC, too, took umbrage with the idea that software streamlines the billing process.

“As often as not, it created confusion,” the GC said, noting that in-house paralegals familiar with the matter they're reviewing can be of greater help.

Other legal departments, particularly those attached to insurance carriers and regulated companies, might use third-party reviewers, who aren't necessarily lawyers.

John Conlon of Noblesville, IN-based Legal Points LLC says his review system supports a 30-day billing cycle.

“I'm sensitive to that ' I do all my reviews within two weeks,” he says.

Conlon acknowledged that some companies will “age” legal bills, but “most companies I work with will pay the undisputed portions” of a bill while withholding payments for others. I'm sure that upsets law firms,” but “I tell [clients], you wouldn't believe the mistakes that I see.”

“A lot of lawyers ' don't look over their bills, so they bring it on themselves. ' I've seen math mistakes in these bills.”

David Paige, founder and managing director of New York-based Legal Fee Advisors, says: “Actually, it can go either way.”

If bills receive no prior vetting before they reach outside review, the process will slow down, but to the extent bills are “floating around” in the legal department, forwarding them to the reviewer can speed it up, Paige says.

“A reasonable third-party billing operation should give the law firm a chance to correct [flagged charges],” Paige says. “They shouldn't be creating appeals to slow down payments.”

Another factor is alternative billing arrangements, which can be used as indirect ways of delaying payment, according to Felton.

Common client requests for partial contingency arrangements based on outcome and extended payment terms “absolutely” affect firm cash flow, he says.

“You'd like to think that over time, those things even out, but it's not quite that simple,” Felton says. “Obviously we have to pay our bills. ' One way or the other, the partners have to bear that burden.”

David Gialanella is a Senior Staff Reporter at our ALM sibling New Jersey Law Journal, in which this article originally appeared. He can be reached at [email protected].