Tuesday, August 14, 2007

E-billing, Friend or Foe?

For one very far removed from the billing process, I envisioned that e-billing would be the nearest and dearest thing to all those in finance, especially those on the billing team. You can only imagine my amazement to find otherwise. This revelation didn’t come over a casual dinner, but rather in the midst of a large open forum with over 80 attendees! Since that June day I have wondered why firms not only dislike e-billing, some hate it with a passion.

To set the stage, e-billing has been around for at least 2 decades. It made its splash in the marketplace about the time of JIT manufacturing. For those who didn’t evolve from the manufacturing world; JIT is an acronym for Just-In-Time. This concept came from across the Pacific Ocean; Asian manufacturing companies. The premise of which, if you know what you are building and when you are building it, you can save yourself a tremendous amount of money by receiving your raw materials Just-In-Time, for production. This saves warehousing space and all the expense of moving inventory around in warehouses. It was this model that allowed Japanese automobile manufacturers to achieve unprecedented profitability, which they then plowed back into the company to further increase their position in the market.

With JIT operating, these manufacturing companies needed a mechanism to streamline how they managed orders, packing slips, receiving documents, and invoicing. As you can appreciate, shipments of windshields and tires several times per week would create mountains of paper and decimate all forms of vegetation from the rainforests. Hence the concept of inventory and billing management evolved. In the manufacturing world, the buyer’s and sellers computers communicate to relay information as to requirements of products, expected date of need and place orders electronically to ensure delivery when the material is needed. Upon shipment, all related documents are forwarded between the systems. Upon arrival of product at the buyer’s location, the warehouse personnel scan the incoming product, which triggers more computer communication and finally the seller has all the pieces to invoice (agreement, order, picking list, packing list, receipt confirmation). The invoice is then sent electronically, e-billed, to the buyer where the buyer’s computer compares, contract, order, pricing, receiving list and then authorizes payment. Magically with minimal human intervention, the purchase order, packing list, receiving list and the invoice are all matched, and the item is in accounts payable already allocated to the correct G/L account. At the trigger point, the bill is released for payment and the funds are wired. What a great system!

For 95%+ manufacturing companies, or commodity based businesses, the e-billing process works like a charm! However, should something go wrong, getting paid can be an uphill battle! This is because the entire system is built on meeting expectations. The company ordered 6 widgets, 6 were picked, 6 were packed, 6 was shipped, 6 were received, and 6 were billed; at the agreed price.

Now take this model into a law firm and it becomes blazingly clear why it is destined to failure. I know for a fact, that someone didn’t wake up one morning and say “hey let’s provide our clients with an e-billing option’. E-billing was a requirement placed on firms who want to deal with large to mega organizations who have already spent decades proving that e-billing works!

To set the stage, e-billing technology underwent Darwinian Evolution. Basically there was no controlling body to set a standard, therefore no standards were set and standards grew from the swamp. So essentially, today companies can use any of a couple hundred e-billing formats/standards. For automakers, this isn’t a problem, they simply tell their suppliers – these are the 3 we use. However to the law firm, this is the first hurdle; which client is using which standard! Keep in mind that e-billing grew out of dealing with easily quantifiable entities, tires, engines, windshields, widgets. So what became of these quantifiable entities that were imposed on law firms? Very simply, what was able to be measured and negotiated: associate hours no more than X% at $Y and no more than Z hours of senior partner time, and photocopying at this rate. This becomes the new standard by which billing is managed, in a legal practice!

Let’s fast forward. The partner meets the prospect, gets the deal! The engagement letter is signed off and all of the acceptance criteria are agreed. The work begins and it is time for billing. We assume that the billing system has managed to ensure all is in alignment with the engagement letter; the contrary is most often the case. The prebill gets created; billing is done and sent through one of the many e-billing portals. Depending on the e-billing portal, the firm will find out within 5 minutes to 24 hours if the bill is accepted. Acceptance is the firm’s first hurdle, does it meet the ‘agreed’ criteria? If it isn’t accepted, the bill has to be “reworked” and then resubmitted.

Once the bill is accepted, all is great! NO! Unlike in the purchase of widgets, where quality is easily assessed, legal work is more subjective. So the e-bill has now passed, what I call, the “scrub” phase, that is where it met the criteria that was agreed to in the engagement letter. However, because of its subjective nature of legal work, it now must be moved to one if not many people in the organization for approval – all electronically! The problem of getting approvals is compounded if the bill requires few to several approvals that must happen in a ‘defined’ order. As with executives, time is of the essence and travel schedules puts people out of the office for days if not weeks. Therefore, internal approvals can take considerable time. Meanwhile, back at the firm, everyone is wondering where the payment has gone!

So what can today’s firms do to move e-billing faster to collections. The process is very simple. In reviewing what happens with e-billing one simply needs to build in ‘checks & balances’.

  1. Have a clear understanding of the terms outlined in the engagement letter.
  2. Implement a prebilling process that is in alignment with the engagement letter
  3. Internally run through the ‘scrub’ phase before producing the bill
  4. Submit the bill to the e-billing vendor
  5. Identify and resolve and ‘kick-back’ errors immediately.
  6. Institute a collections policy to notify the relevant parties when payment is not according to terms. The bills may be stuck in the approval chain.

E-billing is a phenomenal tool for organizations; it ensures receipt of the bill and timely payment. However, like everything, it has its limitations. Spend some time, learn where things can go wrong, build a safety mechanism and most of your e-billing problems will go away!

2 comments:

Rob Thomas said...

Your post about e-billing from the law firm perspective is right on--most law firms see it as a burden imposed upon them by clients. However, as you point out, it doesn't have to be that way.

A recent ALM survey of more than 600 law firms uncovered some of the benefits that law firms are getting from e-billing: http://alm-research.com/Documents/ebillingSurvey.pdf. It is also clear from this survey report that some vendors are strongly preferred by law firms for ease of use and low cost.

In addition to your suggestions, law firms might also consider becoming more pro-active about helping their clients select e-billing systems that work well for both sides of the billing relationship. They should also take a look at the client side of the e-billing systems so that, in addition to making bill submission smoother, they can put their best foot forward. Some systems provide law firms free opportunities to provide information about themselves for the many in-house counsel who are using those systems. Additional background for law firms looking to get the most out of e-billing is in a recent white paper published by the International Legal Tech. Assoc: http://www.serengetilaw.com/News/InTheNews.htm .

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