Technology has opened up possibilities that the world could not imagine existed just decades ago and every industry has reaped the bountiful benefits of technology to update its business modules and bring in plenty more revenue. In the legal industry, the inability to maintain steady cash flow is one of the biggest financial concerns no matter whether you run a solo practice or work with hundreds of lawyers. Cash flow slumps are alarmingly common and result from various factors, among which poor billing efficiency tops the list. Legal invoices are more often than not, riddled with billing errors ranging from simple mathematical errors to significant non-compliances with the clients’ or TPA’s billing guidelines, all of which we have explored below.
The Consequences of Non-Compliance with Billing Guidelines
It should come as no surprise to you that clients are doing everything they can (just like you are) to reduce expenses and bring in more profit. One sure-shot way they have figured out to effectively cut costs is to prepare exhaustingly specific billing guidelines that spare no detail and entertain not the smallest loopholes. Moreover, the very same clients have added a new and extremely powerful weapon to their armory: expert bill review vendors. The combined effect of the same has resulted in law firms being bombarded with delayed invoice payments and several reductions being made to their invoices, resulting in the inevitable: poor cash flow. It has come to a stage where even the slightest non-compliance with billing guidelines results in unnecessary back-and-forth’s between the firms’ billing clerks and the bill review vendors, resulting in extremely delayed payment of the firm’s invoices.
Moreover, if clients are presented frequently with error-filled bills, this at some point is bound to negatively impact on the firm’s client relationships that often take years of mutual trust and coordination to build in the first place.
However, thanks to the power of AI and well-experienced minds, intuitive invoicing platforms such as the one created by Accurate Legal Billing Inc are available to help law firms prepare and submit invoices that are always 100% compliant with each of their client’s billing guidelines.
The most common legal billing errors:
1. Vague Billing Descriptions: A Vague Description is a line entry in an invoice that is not purely unambiguous and does not provide a sufficient amount of information regarding neither the exact nature of the task that was performed nor the exact value of the expenses incurred during the completion of the particular task. Vague Descriptions are considered to be in non-compliance with client’s billing guidelines because they do not provide sufficient information regarding the exact task that was performed and the time took to carry out the task. An example of a vaguely described task would be a line item charging for ‘printing out certain documents’ that has been described without specifying where the printing was done: infirm or outside, as the charges differ significantly for each and infirm printing might not be billable as per the specific clients’ billing guidelines. Such an entry is likely to be rejected without payment on account of not being clear enough.
Studies have indicated that on average, about 36% of line entries in any manually prepared law firm invoice fall under the Vague Descriptions discrimination.
2. Padding Time: This is surprisingly common among top-notch attorneys who are ultra-efficient and get their work done in half the amount of time that it is supposed to take. Now, it is unclear whether this is done to benefit the firm or due to the pressure of justifying one’s professional worth by having it weighed solely against the number of hours billed, but it is a trend as old as time itself to prolong the duration of time that it takes to complete tasks. A detailed survey revealed that over 50% of lawyers openly admitted to padding hours to their bills. The main causes for this were determined to be the general non-necessity of being accountable that lawyers felt, the well-known loophole that in pure technicality, legal tasks can take indefinite amounts of time as they are, theoretically, infinitely expandable.
However, times have changed and most of the clients out there these days have hired expert bill review vendors who look into every line entry that has been created and scrutinize it to the slightest detail so that they can save their clients’ money.
To give you an example, let us take the case of a leading building material supply company Questech who rendered the services of a prestigious large law firm for over two decades. Eventually, they realised that though they were paying the firm increasingly humungous amounts of money, the quality of the services being provided to them weren’t exactly tallying with the bills which caused them to hire their own in-house counsel, who in no time figured out how much of the hours mentioned in the invoices were actually padded.
To avoid being flagged for padding time, it is recommended that each entry made by you is described accurately and to have an awareness that the complexity and time taken generally to complete a particular task is measurable against industry quality.
3. Consulting for Professional Services: Your clients who hire you for your expertise and experience trust you to utilize external resources judiciously and with their acknowledgment. Before engaging investigators or other outside experts, it is therefore mandatory to inform your client or the claim adjuster about this and get their approval for doing so. Moreover, the per-hour rates of these professionals along with an estimate of the total cost for availing their services must be provided to the clients. The absence of clearly mentioned prior approval in the description of the billed item results in the line entry being crossed out as non-payable by the bill review vendors.
In other words, law firms have no authorization to utilize the services of external professionals such as engineers, local counsel, consultants, investigators, etc for a case without prior permission from the clients.
The above-mentioned study revealed that about 14% of the line entries in an invoice are likely to get rejected because either prior approval for the payment and utilization of the external professional services was not obtained, or was not mentioned in the description of the line entry.
4. Disallowed Expenses: It is a pretty obvious fact that expenses that are explicitly disallowed by the client or TPA are not going to be paid for, so adding them to the bills ultimately just presents your firm in a bad light. There is often plenty of confusion surrounding this because though most of the expenses that are disallowed are general, some are very specific to particular clients and thorough knowledge of each guideline becomes a necessity to maintain strict compliance.
Here is a list of expenses that most clients tend to disallow and note that to you this may seem very billable indeed: long distance phone calls, travel under certain conditions and circumstances (for example, travel that does not exceed two hours), photocopying, etc. These expenses, however, can be billed for if client approval is received for the same in prior and such specific circumstances have been mentioned in the agreement explicitly.
Alternatively, investing in an online legal invoicing platform such as ALB can assist greatly in this because when your firm uses ALB, each of your client’s guidelines can be entered into our highly intelligent AI-Powered system that through machine learning assesses the specific guidelines and prompts the timekeepers while they capture their daily activity to ensure whether the billing of the particular item has been approved by the client or not, and instructs them to obtain approval for the same, if they have not yet.
5. Block Billing: While this isn’t as common as padding time, block billing falls under the same group of tricks that law firms have up their sleeves to bill for more time. If you are wondering what block billing is, it is the practice of combining two separate activities and billing them as one to inflate the time taken anywhere between 10% to 40%. Sadly, your clients and their bill review team are not impressed. Instead, this is regarded as a sign of poor billing efficiency and a ruse to prevent the client from realizing exactly how much time was taken to complete a certain task while assessing the value of the task and the complexity of its nature.
There is another, major, drawback for law firms resulting from block billing that they do not realise: besides the act being non-compliant in itself, if even a part of the entry discriminated on the basis of block billing is non-compliant with the clients’ billing guidelines, then there is a very high chance that the entire entry can be rejected by the bill review vendors, and this is hoping that the entry isn’t flagged for block billing as such.
The study revealed that on average, about 2% of the entries in any given invoice contained entries that could be discriminated and rejected for block billing.
6. The Absence of Proper Phase, Task and Activity Codes: No matter how well you describe your activity, unless it is properly coded, there is a very high chance that the bill review vendor will flag this merely for the inconvenience that it causes. Every entry must be segregated and categorized using the appropriate codes as this creates a good rapport with the clients and exhibits professionalism reflecting in the work done and that works well with both the bill review team as well as the client.
7. Lawyers Performing Paralegal Activities: There are some entries in the invoice that indicate that senior attorneys, instead of dedicating their entire time to moving the case management forward, are invested in performing activities that can easily be handled by junior staff or paralegals. Administrative tasks generally fall under this category as legal expertise does not need to be expended for completing these tasks. For example, if senior attorneys bill for time spent conducting routine research or filing documents, they are very less likely to be paid for doing these.
As we discussed earlier, even the slightest non-compliance with billing guidelines can prove to be cumbersome for the firm. We believe that the solution to avoiding billing errors and ensuring 100% compliance lies in technology.
Using Technology to Avoid Billing Errors
As is the case with most things these days, the solution to most problems lies in technology. Law firms are in dire need of updating legal technology to implement advanced software that helps them prepare and submit invoices that are 100% compliant with their clients’ billing guidelines. This software ideally serves as the ultimate tool that helps improve law firms’ cash flow, their billing efficiency and increase their profit margin, thus proving to be a financial asset that helps fight off the aggressive reductions made by bill review vendors.
Using technology to capture time and generate invoices significantly reduces the workload that goes into these activities while ensuring that each of these activities is entered correctly, satisfying the compliance requirements as stated in individual client’s billing guidelines.
Accurate Legal Billing Inc has developed such an advanced, AI-powered, cloud-based legal time tracking and billing software that presents law firms with an interactive and intuitive dashboard that helps them capture daily activity and prepare invoices and convert them to standardized formats such that they are 100% compliant with clients’ billing guidelines. This ensures that the firms using ALB suffer minimal to zero reductions on their invoices and thus there is no delay in payment occurring as a result of these cuts.
Every activity captured by your timekeeper is subjected to automated bill review which is a feature that has been developed through machine learning and this ensures that the invoices submitted using our platform are devoid of any of the errors that have been mentioned above. For instance, every time your timekeeper creates a line entry for an activity that generally requires approval, the system prompts them to obtain approval for the same, failing which the entry is not presented in the final invoice thus guaranteeing that every single item in the prepared invoice is entirely compliant with the clients’ billing guidelines.
And due to the invoices have no issues of non-compliance, the bill review vendors process them rapidly and the payment for the same is received well on time. Timely payments, without any reductions on invoices, result in excellent cash flow. Using ALB, the overall billing efficiency of your firm is increased.
For more information regarding ALB and our features, click here and to schedule a demo with us click here.