March 17, 2022

compliance invoice review legal operations billing guidelines

Looks can be deceiving. Take invoice review. It seems to be a zero-sum proposition for a corporate law department and its outside counsel. After all, any reduction in an invoiced amount accrues to the law department’s benefit at the expense (literally) of the law firm in question.

Yet, dig a bit deeper, and it turns out that both corporate law departments and law firms both benefit, in four ways:

• Fairness. Everyone wants fair treatment, and that’s at the heart of invoice review. The goal isn’t to maximise economic benefit (i.e., law department savings or firm revenues) but to establish and maintain a relationship where everyone agrees, building trust and confidence between law departments and their outside counsel.
• Compliance. As with fairness, the goal of compliance shouldn’t be controversial; all parties seek to ensure that invoices meet the billing guidelines established by the client.
• Promptness. Nobody likes to draw out the payment process. Firms want to get paid promptly, and law departments want to avoid extensive back-and-forth regarding line items in an invoice.
• Liberated time. Invoice review is a tedious and time-consuming chore for clients and firms alike. It’s safe to say that no one went to law school because he/she was thrilled at the prospect of spending hours on invoice review. The greatest benefit of doing invoice review well is that it frees lawyers — both in-house and at firms — to focus on higher-value work.

These benefits enhance the relationship between a law department and its law firms. That is a win-win proposition.

However, a stronger relationship is not the inevitable result of invoice review: how you manage invoice review has a tremendous effect on the relationship. In a healthy relationship — one characterised by mutual respect — neither party attempts to impose things on the other. Indeed, attempting to impose guidelines and processes is often counterproductive for invoice hygiene. With clean invoices as your goal, the law department’s number one job is persuading rather than dictating. Doing so is a matter of four steps:

• Education. In-house counsel’s first job is to explain to outside counsel the rationale, objectives, and (perhaps most importantly) the shared benefits of compliance with your billing guidelines. Your law firm colleagues should understand both the intent of your guidelines and how to comply with them. You want them to internalise both the spirit and the particulars of your guidelines, which requires educating them.
• Communication. The next job is to communicate with outside counsel on an ongoing basis regarding invoices. You should promptly inform them of any non-compliant line items and explain how that line item fails to comply with your guidelines. It would be best if you also communicated with them when they consistently do a good job with compliance. Again, the overarching goal is to improve and enhance your relationship.
• Analysis. Clean invoices provide the data that can reveal unusual trends. However, when you discover a trend or an anomaly, your impulse should not be to confront outside counsel but rather work collaboratively with them to understand what explains the trend or anomaly and figure out how to address the problem.
• More communication. Throughout, it is critical to continue communicating with outside counsel on an ongoing basis to achieve the best relationship possible.

A final point bears mention: don’t let perfection be the enemy of the good. In our experience working with some of the world’s largest companies and biggest law firms, reaching 100% compliance with billing guidelines is an unrealistic goal. Everyone can make a mistake — even lawyers — and some billing entries require judgment, and good-faith disagreement can occur. The important thing is to remember the mutual benefits of getting invoice reviews right. When that happens, everyone wins, and corporate law departments are better off.