AI is killing e-billing - what comes next?

For the past two decades, legal teams have relied on one tool in particular to protect them from overspending on legal services and to demonstrate savings to their organizations - legal e-billing. AI tools are about to change that for good.

The simple idea behind e-billing is that law firms struggle with invoicing clients. They will have hundreds or thousands of clients, each with their own ideas on what is or isn’t acceptable on an invoice - often formalized into outside counsel guidelines, or OCG. What might be perfectly acceptable to one client will provoke a challenge from another. Law firms conduct bill reviews - partner or associate time spent reading through the invoice line items - to try and ensure the invoicing process goes smoothly. But this process is painfully manual and time consuming, client OCGs are often open to interpretation, and so this process is far from perfect. The result? Clients are invoiced for work that they don’t want to pay for. What happens next is a painful process for both client and firm, as the invoice is rejected or short paid, and a game of invoice table-tennis begins. It’s these billing errors that e-billing tools rely on to show cost savings.

E-billing tools have been ramping up this approach for clients, with more detailed invoice formats, optical character recognition, and AI checks on billing guidelines and rates. The result is that law firms are spending ever-increasing time and money on managing invoice disputes, write-downs, and bill review - which does nothing for relationships. And as law firms get better at playing this game, clients are finding less and less in savings and spending more time being chased for payment by their firms. Ultimately, this reflects an obvious point about client / law firm relationships - after the invoice is simply not the right time to start aligning on value.

Nit-picking invoices is painful for both sides, and can damage valuable relationships. Focusing all your time and effort on challenging invoices encourages the wrong behavior - always reactive and treating your law firm partners more like naughty children than trusted advisors. But until now, the quick savings and ability to enforce compliance have made e-billing worth it. Law firms, traditionally slow to adopt new tech, are finally fighting back and the days of e-billing are numbered.

New AI billing tools are automating the bill review process for law firms, promising ‘reduced invoice disputes’ ‘improved cash recovery’ and ‘faster invoice payments’.

Able to easily ingest the OCG’s for all their clients, these tools flag potential issues for law firms ahead of invoice submission, allowing entries to be corrected or written down in advance.

They also incorporate learnings from the client’s responses to ensure that invoices don’t trigger disputes.

The outcome? A GenAI stalemate, where law firm billing tools will ‘intelligently’ write invoices aligned with the clients requirements, and then the client’s e-billing tool will ‘intelligently’ read it and approve it. In a short time, e-billing tools won’t be achieving any real savings at all. 

For legal teams who are currently relying on e-billing tools to show savings, you might be asking ‘what’s left?’ Great news! There are two main levers to focus on in order to control costs and maximize value, and each of these is worth a blog in its own right. Let’s do a quick summary here:

1. What you do before the point of instruction
2. How you effectively manage in-progress work

Matter inception is your first opportunity to select a vendor that’s aligned with the value you want to receive, right at the beginning of the process. The first step is to use data to choose the right law firm for the job. This could involve a trusted panel where you have built relationships over years and agreed the best terms. Or it could be a competitive process where you run an RFP and let a group of firms compete for the work. The second step is choosing a fee arrangement that will be effective for the type of work - again, using data here is crucial. Matter inception is your first opportunity to deliver cost savings - and it’s important to get it right.

Manage in-progress work - once you’ve started out on the right track, you now need to ensure you get the value that was agreed. How do you achieve that? By getting a real-time view of how all your matters are progressing, proactively flagging any risks of overspend, and using data to deeply understand the value that work represents through benchmarking and live reporting. Crucially, you are being proactive and taking intelligent, cost-saving action while matters are in progress - before costs have crystallized in an invoice.

At the end of the matter, you’ll still want a final check on the invoice to ensure everything is as it should be (which is why we’ll continue to provide e-billing functionality for clients) - but this should be a backstop and not your first line of defense when it comes to cost control.

So, let’s recap:

The best forward looking approach is transparent, collaborative, and focussed on real value instead of the high-friction / low reward approach of invoice disputes. Let’s take a look…

Steps to End the E-Billing Arms Race

1. Embrace transparency - the best way to align on value with your law firms and achieve the best results
2. Start at the beginning - how you instruct matters, matters. Have a data-driven process for choosing the right law firm and the most effective fee arrangements
3. Use legal spend management tools to get real-time visibility of ongoing matters, proactively manage budgets and prevent overspending
4. Get rich insights into the value law firms are delivering using customized benchmarking and deep data to analyze law firm performance
5. Build strong law firm relationships with your key advisors through improved transparency and collaboration
6. Automate invoice review as a final backstop to ensure quality, not as your primary cost control strategy

The role of tech in legal spend management

Looking for a silver bullet to address all these issues? You are in the right place. Here’s how legal spend management software hits and resolves the root causes…

Misalignment of interests:

✅ Provides a single source of truth for both parties

✅ Enables data-driven discussions on value and efficiency

Lack of transparency:

✅ Offers real-time visibility into work as it takes place and accruing costs

✅ Generates detailed reports and analytics

Inefficient billing processes:

✅ Automates manual tasks, reducing errors and saving time

✅ Streamlines approval workflows and flags potential issues early
 

But, e-billing systems that rely solely on invoice data can’t help here. So, these are the key features you need to look for to achieve real spend control:

• Real time visibility into work-in-progress: real-time view of how all your matters are progressing, proactively avoiding overspend
• Automated alerts: Live notifications for budget thresholds, inefficient work, or required approvals
• Customizable reporting: Tailored insights for different stakeholders' needs utilizing real-time data
• Matter management tools: Track progress as the work is taking place, alongside financial data
• Communication platforms: In-system messaging and note-sharing capabilities
• Version control: Track changes and maintain a clear audit trail
• Benchmark comparisons: Compare performance against industry standards and historical data to maximize value

Strategies for making the shift

As you can see, there is great disruption taking place through the rapidly increasing deployment of AI, fueling an arms race between law firm time and billing systems and e-billing tools. Legal spend management software serves as the bridge between law firms and clients, transforming the billing process from a potential battleground into a platform for collaboration and alignment on value.

By addressing the root causes, offering features that promote transparency and efficiency, and delivering tangible benefits to both parties, this technology plays a crucial role in ending the e-billing arms race.

If you’re keen to explore how to start proactively controlling costs, look no further. At Apperio, we give clients cost control with real-time insights, and unparalleled data to support better decisions. Book a demo here to learn more.

Keen to learn more about legal e-billing software? Take a look at these blogs:

• Build stronger law firm partnerships through a modern approach to invoices
• Apperio unveils groundbreaking enhancements to revolutionize legal data collection and analysis, now addressing the whole e-billing market
• 6 tips to unleash the power of visualizing legal spend and WIP/accruals

Keen to see what this could look like for your team? Get in touch!