"We implemented it at the direction of our clients," Bell said.

Five years ago, The Hartford, a major Connecticut insurance company, told Bell's firm it was requiring outside counsel to submit bills electronically over the Internet. Since then, another client, Triad Hospitals, the Texas-based hospital corporation, has also adopted e-billing. Bell said the firm e-bills about 5 percent of its client base.

Electronic billing has been around for a decade. But law firms - traditionally laggards in technology - are finally boarding the e-billing bandwagon.

Spurred by corporate-wide cost-control efforts, an increasing number of law departments are requiring firms to submit their bills electronically over the Internet. Electronic billing reduces the cost of paying bills and enables corporate law departments to track and justify outside legal spending more closely.

Within 10 years, e-billing will be used in 50 percent of corporate law departments, predicted David Briscoe, a senior consultant with the Pennsylvania-based legal consulting firm Altman Weil.

"It's a huge issue that people need to be thinking about," he said.

Like Bell's firm, 10-lawyer Williams, Sennett & Scully in Cleveland was forced to adopt e-billing by its corporate clients, according to firm administrator Sara Mangol.

To make that switch, the firm needed to make some changes to its billing software program so that the client could read the bills properly. Lawyers within the firm also had to get used to using billing codes for specific legal services.

A tech support representative from the e-billing vendor walked firm members through the process and helped work out the glitches. Mangol said the firm now submits bills electronically to about 25 percent of its clients.

For Bell, the biggest benefit to his firm has been the quick turnaround time for payments - a benefit that could also be obtained by firms that work with smaller businesses.

Bell's firm, which specializes in medical malpractice defense, spent about $500 for e-billing software and had to give The Hartford a 5 percent discount on legal work. In return, The Hartford promised payment within 72 hours, a pledge it has since delivered on.

"The real advantage to the client is that they can study the bills and compare how much time different law firms are spending on different tasks to determine how efficient we are in the use of time," Bell said. "We don't have any problems with that at all. Like most other law firms, we feel like if we're doing a good job, we want them to figure it out."

"We'd be thrilled if every one of our clients used this system," Bell added.

Client-Driven
About 7.7 percent of corporate law departments already have electronic billing systems, and another 21.1 percent are currently implementing such systems, according to a recent survey by Altman Weil. An additional 21.1 percent of corporate law departments are evaluating e-billing systems.

Experts say that clients, rather than law firms, are most likely to initiate e-billing.

"It's one hundred percent client-driven," said Briscoe.

The benefits to business clients are clear. E-billing reduces legal invoicing costs by as much as $50 an invoice, and allows companies to better track and manage their outside legal spending.

Many corporate law departments hire Internet intermediaries to collect, organize and analyze their electronic invoices. Called application service providers (ASPs), these middlemen package the electronic legal invoices with sophisticated cost analyses. The reports enable law departments to break down legal costs in a variety of ways, both in terms of effectiveness and cost-efficiencies.

"The biggest benefit to in-house counsel is being able to get quantitative sets of how much they're spending on outside counsel," Briscoe said. "If I'm the in-house counsel, I can slice and dice the actual time entries in so many different ways; I have lots of different measurements and metrics that were just simply impossible in paper form."

A paper bill typically contains a chronological listing of activities that the lawyer performed for the client, with a date, some description of the services, an hourly time figure and the lawyer's hourly billing rate.

"Corporate purchasers of legal services say getting a paper-based bill gets them almost nothing," Briscoe said. "It just tells us how much to pay. With an electronic bill, they can at least begin to get some sense of who are the lawyers, what are they doing, how does the bill break down and is the bill in compliance with the rates and expenses they've negotiated?"

Over the long-term, Briscoe predicted, corporate law departments will be able to review the data to determine "which lawyers in which law firms are more efficient at delivering the legal services and also get them a good outcome."

For the law firms submitting e-bills, the benefits are less tangible, which is one reason experts say that firms have been reluctant to embrace e-billing.

"The attorneys have largely complied when they've been asked," Briscoe said. "There's not much of an incentive for them to initiate [e-billing]."

Generally, however, lawyers who submit bills electronically are paid much faster. According to experts, the payment time with e-billing is as fast as a few days or weeks, compared with 60 days to six months with paper bills.

The move to e-billing will also benefit efficient law firms by making them stand out more when corporate clients analyze their bills.

"When you track the data, they will stand out from their competitors," said Briscoe. "The data will show them being exceptional."

How It Works
The American Bar Association paved the way for e-billing in 1995 with the creation of task codes for specific legal services. Four years ago, the ABA released specifications for computerized billing invoices.

According to Briscoe, electronic billing has four main components:

Jerry Malinin, Motorola's law department program manager, said the goal of e-billing is "to really aggressively monitor and manage our outside legal costs."

Motorola recently selected an e-billing provider.

"We receive a lot of billing data that we really cannot effectively analyze," Malinin said. "The biggest strength of e-billing is the analytical ability we'll have to graph the data we receive, and to slice and dice the data in multiple ways. That is very attractive to us."

As a corporate department, he said, "We're always being challenged to aggressively manage our outside legal spending. Someone will always ask, 'What are you doing to ensure Motorola is deriving the best return on our outside counsel spending?'"Motorola, which spends tens of millions of dollars each year on legal costs, has a network of firms it works with regularly. Once the system is up and running in about six months, all of its outside lawyers will be required to submit their bills electronically.

After he has about a year's worth of data, Malinin said, he'll be able to examine exactly how various firms are spending Motorola's time and money. For example, he'll be able to determine which law firms log most of their billings in discovery, which ones usually avoid litigation and which ones always end up going to trial.

"We want to be able to have that data so we can make intelligible decisions when we make our outside counsel selections," he said.

Den Ouden said e-billing reports can detail a specific law firm's billings, break down the company's legal cases by wins, losses and other factors and even focus on the types of legal mechanisms used successfully, according to Matthew Den Ouden, national sales director of Tymetrix, a Connecticut web-based e-billing service whose clients include Motorola and dozens of other Fortune 500 companies.

"They're pretty sophisticated analytics," he said. "A firm can see which of their outside law firms is using ADR (alternate dispute resolution), which is actually achieving successful results using ADR, and which is using ADR in cases where our exposure is over $2 million."

The benefits to corporate legal departments are so enormous that it's only a matter of time before e-billing is standard practice, Malinin predicted.

"More and more corporate legal departments are going to wind up going through this," he said. "There are tremendous efficiencies to be gained by eliminating the paper process."

Implementing an e-billing system can cost anywhere from less than $1,000 to several thousands of dollars a year in fees paid to a service provider.

Open Air, a Boston web-based electronic invoicing firm that targets solo and small-firm lawyers, charges users about $75 a month. Lawyers log onto Open Air's website, type in their name and password and submit time sheets and expense reports. Open Air then creates invoices that can be submitted either electronically or by paper.

Although law firms account for only 5 percent of Open Air's client base, Brett Huff, director of client services, expects to see more law firms moving to e-billing.

"I think lawyers are trained to be paper-based," he said. "The image of propriety and tradition is valuable to law firms."

He added, however, that small law firms are "more willing to experiment."

"Smaller firms act more like smaller businesses," Malinin agreed. "They're more entrepreneurial."

This article has been reprinted with the permission of Lawyers Weekly USA, the national newspaper for small law firms. To subscribe, please visit www.lawyersweeklyusa.com or call (800) 451-9998.

Copyright 2004 Lawyers Weekly USA