No one likes surprises, excess administration or unexpected costs - least of all your CFO.
Getting your supplier-billing under control is, therefore, essential to keep your CFO happy. It’ll also save you time, enable you to use your external law firms more efficiently and support your case for more budget.
Take control of your external spend
If you’re looking to control your organisation’s expenditure on external lawyers, a good way to start is to analyse and profile all your legal spend. Click here to see our Legal Spend Table Diagram.
Start by going through all the accounts payable records for the last couple of years and pulling up all invoices that look like they’re from a law firm.
It may be laborious, but it’ll be time well spent. You’ll get a good picture of historic legal spend complete with the what, the where and the who – including who in your organisation commissioned the work.
Next, agree with your colleagues that no further spend will be authorised until you’ve approved it. You’ll have to sign-off on anything in progress because of the ostensible authority of the commissioner to commit your company. However, as that work filters through, you’ll rapidly get on top of all regular commissioning.
You can then put a block on purchase orders being raised to these types of suppliers without your approval. Again, you’ll need to honour those already in the system.
Once you have control, you should be able to analyse what spend is occurring and why. For example, you’ll be able to assess what business unit, legal team activities and/or weaknesses and/or legal team capacity or competence gaps are driving the expenditure. This in turn will enable you to think about forthcoming business and legal changes in the context of your internal team resources and skills – and plan your future external legal needs and budget.
Build internal relationships
It’s a good idea to build internal partnerships with business and finance colleagues to help you prepare the necessary documentation. Even more importantly, you’ll benefit from the extra visibility of your work across vital areas of the organisation.
It also allows you to manage the perception of the legal function. If members of the organisation’s C- suite see you predominantly as a cost centre, you’ll be able to demonstrate where costs are being incurred for a specific business unit or to support a strategic objective. They can then see the amount of value that you add and then the smaller amount of cost that enables it - the "net value add" - rather than just seeing the cost. When registering a trademark is seen in the context of ensuring that the new expensive brand and advertising campaign can be protected then, suddenly, the trademark registration looks great value!
Start with a manual process
Automation can improve almost any process, including supplier billing. However, you need a process to automate in the place first. For this reason, it’s often best to start with an effective manual process, then assess whether it’s worth migrating to – and operating – an automated alternative. Direct costs and management time are the key factors to consider at this stage.
Think too about audit risk, staff locations and the ability of any system you adopt to automate and analyse the data you receive from law firms. Are there any overriding issues that mean an otherwise uneconomic decision still makes sense?
Automating – what to consider
Once your manual processes are working efficiently, start recording and analysing the time they take to manage and administer. Then, evaluate how much time and money you could save by automating the process which you can offset against the implementation and operation costs of an automated solution. When you consider every step of the process, how often things go wrong and how much time you spend putting them right, the saving can be significant.
When looking at any process of this kind you need to think about:
- How often you start or terminate relationships with suppliers. To what extent will automation speed up the administrative tasks and ensure your new suppliers get paid on time?
- Internal finance and procurement policies. You may need to adapt a system so it has a seamless interface with other departments. Indeed, they may have an existing system you can use. If so, this could offer a quick and cost effective way to make a fast transition to an automated process;
- How often you use each supplier and on what fee model. Factor in the number of invoices you process, which departments and geographies are involved and on what fee model. For example, are you paying by the hour or do you agree fixed fees? High volume, high frequency work with a low number of suppliers on standardised terms is the ideal scenario for automation;
- Internal approvals needed to authorise the purchase orders and invoices. This could involve many people if you have a complex organisational structure. Legal spend is normally, by both volume and value of transactions, a very small part of overall spend. You may find it more practical and politically appropriate to adopt as much of any existing systems and process as you can;
- How you plan to manage the supplier relationship and control the quote, approval and payment cycle; and
- How tech savvy your suppliers are and how much clout you have to bounce them into using your tools and processes. An existing e-billing equipped law firm that you’re a big customer of by volume and value of transactions would be an easy sell. It wouldn’t be so easy for the boutique firm you use on rare occasions for small specialist projects – and there would be limited value in it for you. That said, there’s no reason why you can’t use automation for high volume work and manual processes for low volume.
Manual or automated: the benefits of a good system
Whether manual or automated, a good billing system will simplify your workflow, make things clearer and allow you to pass information safely to your colleagues in accounts payable. It’ll also show you your total spend and how it breaks down by:
- Work type;
- Team member or client department commissioning the work;
- Project type; and
- Any other criteria important to you.
This data can then allow you to specify the firm and advisor level you want for a particular project and to spot and remove common causes of overruns. Alternatively, it can support your case if you seek to make the business unit responsible pay for any overruns resulting from vague instructions or poor preparation.
But most importantly, a good billing system allows you to budget and to forecast your costs accurately.
So, getting a good manual process up and running - even if it’s an Excel spreadsheet - will help you budget efficiently and build your credibility among your senior management colleagues. This is especially true if you co-opt staff from finance or procurement to work with you.
Then, with your data in good shape, you’ll be in a good position to take advice about whether automated billing is right for you – and if so, which tool would serve you best.
A thorough and systematic approach to taking control of your budgeting, invoicing and manual billing with your law firms can be time consuming. However, with a little help from your friends in finance and procurement, it can be a straightforward process and save you time, effort and nasty surprises. It’ll help you model your budgets and forecasts better and may lead to you automating your processes in future. Above all, improved controls will give you better credibility with your CEO and CFO – which, in the long run, makes everything easier!Legal Spend Table Diagram (PDF 317 KB)