There is no doubt that electronic invoicing (e-billing) is one of the fastest growing trends in the client/law firm commercial relationship. We suspect that by now the majority of firms have been approached by clients (or one of the e-billing intermediaries) to enquire as to the law firm's capability to produce and deliver bills electronically.

Before looking at the specific issues faced by law firms approaching an e-billing initiative we need to distinguish between “full” e-billing as against the uploading of a PDF or Word copy of a paper bill or the keying of invoice details to a client or third party web site.

Full e-billing involves the production of an electronic file (usually in one of the LEDES formats) which contains not just the invoice header, matter information and bill totals but a detailed breakdown of time lines and expenses, coded using the UTBMS code sets for Tasks, Activities and Expenses. As is now the case in the US with full e-billing there is, or should be, no requirement to produce an equivalent paper bill.  

Even though most legal practice management systems can generate a LEDES format bill, which is a technically correct rendering of the legal bill, there are many other questions to be resolved before successful e-billing is possible.

Some of the key questions that law firms have to resolve before they can “go-live” with full e-billing are:

• Organisational – how do we ensure that matters are set-up correctly for e-billing? Do we have to re-organise our internal billing teams in order to accommodate e-billing?  Have we got the right processes in place to capture the client's matter information for putting on our e-bills? Are we able to upload clients' bills into the intermediary system and deal with the rejections and queries in a timely manner? Are our practice management systems able to produce the correct matter and timekeeper lists for uploading to the intermediary or client e-billing systems?

• Cultural – how do we ensure that our lawyers are entering the correct Task and Activity codes when recording time?  Are time narratives being entered correctly bearing in mind they are visible to the client? Are our e-bills compliant with the client's, often stringent, billing and submission guidelines?

• Statutory/regulatory – are our e-bills compliant with the various Tax rules, Regulatory bodies and other legislation? In the UK many firms produce both a legal “bill” and a separate Tax invoice. If the e-bill is to replicate both documents then these statutory/regulatory issues have to be satisfied. We have to ensure that our e-bills and other information sent to clients and intermediaries complies with, among others, the requirements of the SRA, HM Revenue & Customs, Data Protection laws, the Business Names Act and EU billing regulations. We should also ensure that the e-billing intermediary system handles these issues correctly and that the e-bill as seen by the client complies with all the appropriate regulations.

• Non-standard Billings – on our e-bills how do we represent the less straightforward billing models? For example, can we e-bill for fixed fee matters, third party bills and split bills. Can the e-bill reflect the offsetting of any client monies held on account against the bill total? Does e-billing impact the data that may be produced by the client at relationship meetings compared with the law firm's own billing data? Does the client want us to include written-off or non-chargeable time on our e-bills?

• Scope – we have to agree with the client and intermediary the exact scope of each phase of an e-billing project. Are both the law firm and client in agreement as to which law firm offices are required to generate e-bills for which client company in terms of both the geographic and legal entities? If the law firm has offices outside the UK then there are further issues to consider. In general terms we can say that in the US the legal and regulatory issues of law firm e-billing are well understood; in the UK we are getting there; but in the EU and other jurisdictions there are still issues to be resolved.
 
E-billing has been described as both a threat and an opportunity for law firms. Some individuals within firms see this new transparency in the billing process as a threat. No doubt there are risks that a law firm must manage as more detailed billing data is exposed to the client in a format that can be easily analysed and compared with data from competing law firms.

On the other hand firms can see e-billing as an opportunity to enhance the client relationship, and gives law firms an opportunity to work closely with the client on providing added value services over and above the delivery of legal advice.


Who benefits from e-billing?

The key terms often used to describe the emerging e-billing model are transparency, clarity and control.

Many in-house general counsel are seeing e-billing as a way to get better control of their legal costs and “spend management” is a term much used in corporate legal departments. The main benefit from the client's perspective is if all law firms are using the LEDES standards as well as the UTBMS codes on their e-bills is that this allows large volumes of detailed billing data to be initially validated and then analysed and compared by the client in order to better understand their legal “spend”. This detailed work breakdown information, as well as the lawyers' time narratives/notes, are included on an e-bill and thus exposing much more of a firm's internal data to clients.

Other benefits to the client are that are claimed for e-billing are that it reduces erroneous charges, enforces compliance with the billing guidelines and ensures that the seniority and charging rates of lawyers working on a matter are known to the client. Some clients rigorously enforce their billing rules and e-billing does provide a way for these rules to be more strictly applied than with paper-only bills. While this strict compliance with the rules is more prevalent in the US, it is a possibility that in the UK we could be seeing more rigour being brought to bear in the enforcement of what can (and cannot) appear on legal bills.

The use of UTBMS Task, Activity and Expense codes and the level of detail included on e-bills allows the client to carry out a very detailed analysis of fee information and billing practices and the increased transparency that e-billing brings increases the risks for the law firm unless well understood and managed.

While on the surface this seems like a one-way street in the client's direction we should look for the benefits for the law firm as well. While there are the obvious (and hopefully tangible) advantages for the law firm in terms of faster authorisation and payment of bills there are some less obvious benefits as well. Law firms should not underestimate the potential use that they will be able to make of the additional information being collected in order to meet the needs of e-billing. Detailed information of the law firm's billing practices will be collected in order to produce e-bills and this data can then be analysed internally by the firm in order to compare department to department and office to office. E-billing also enforces more consistent billing and time recording practices, which again the law firm should be able to benefit from internally.
 
In addition, the e-billing intermediaries themselves are realising that in order to add value to the billing relationship they can provide the law firms with benefits as well. They can allow (with the client's permission) greater visibility of the status of un-paid invoices within the client's own authorisation and payment process as well as providing various analyses, for example, why invoices are rejected by the validation software or how long invoices are taking to be cleared for payment.  

E-billing must be approached in the right way and in a spirit of openness and co-operation but law firms and clients must not underestimate the effort required in order to implement a successful e-billing solution. In practice the least stressful e-billing implementations have been where the client, the intermediary and law firms have worked together on a common project basis, addressing all the issues in a co-operative and open way. This can only help to cement the client/law firm relationship in a positive manner.

E-billing definitions

LEDES – Legal Electronic Data Exchange Standards. These are the standard file formats used for the transmission of e-bills between law firm and client. The current LEDES format standards are: LEDES 1998B, LEDES 1998B-I, LEDES 2000 and LEDES XML 2.0 In 1995 Price Waterhouse convened a consortium of leading legal time and billing system and case management system vendors in order to define a standard electronic billing format for use by the legal industry. From this initial work the LEDES 1998B format emerged and is still used widely in the US. More recently other LEDES formats have been added to accommodate features such as VAT and multi-currency as well as other e-billing requirements outside the US. The LEDES standards and are now governed by 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. For further information see www.ledes.org

UTBMS – Uniform Task Based Management System. These are the sets of Phase, Task, Activity and Expense codes designed to provide clients and law firms with a common method for identifying the work breakdown and cost information of legal services. This standard was created in the mid-1990s by an industry group, which included the ABA and Price Waterhouse, but in 2006 the UTBMS Task Force merged its efforts under the LOC umbrella. There is now a LOC sub-committee charged with considering the future direction of the UTBMS codes used in legal e-bills. The original and most widely used Phase/Task code sets are those for Litigation, Bankruptcy and Counselling matters with the associated Activity and Expense codes. More recently new and amended code sets have been defined for Patent and Trademark matters and for Project/Transactional work. For further information see www.utbms.com

Legal Billing intermediaries. There are a number of organisations, mainly based in the US who, among other things, act as e-billing intermediaries on behalf of clients. Some of the key players in this market are DataCert, CT Tymetrix, Serengeti Law, Bottomline and LexisNexis/Examen. Although they have differing operating models they essentially provide a software link between a client and its law firms and are the first point of contact when e-bills are being submitted.  In simple terms, the intermediary software validates the law firm's e-bills against agreed rules and then either rejects the bill so that the law firm has to amend and re-submit it or, if valid, will pass the bill data to the client's own internal systems for authorisation and payment. They also provide the client with powerful software that allows the in-house legal teams to perform sophisticated analysis on the e-billing data submitted by the various law firms.

• Bryan King retired from Clifford Chance at the end of December. King was formally IT Development Manager at Linklaters from 1985 to 1994 and Lovells from 1994 to 1996. At CC he managed the firm's systems development function at the time of the 2000 merger and held a number of senior IS roles at the firm. Since 2004 he has been responsible for the firm's global e-billing projects and is available for a consulting role. Email bryan10king@btinternet.com