Five essentials of legal spend management

Keen to get started in legal spend management but it seems overwhelming? Take a crash course in what, why and how with five quick steps to get you started.

No in-house corporate Legal Department has an open budget to spend on law firms. Whilst large, company-critical litigations, or major strategic transactions may attract a "win at all costs" approach, your business-as-usual legal spend requires a much more disciplined, but easily implemented approach.

More importantly, legal spend management should not overwhelm your corporate Legal Department. You are busy enough managing legal matters, that administrative overhead should be caked into your process rather than adding another layer. So how do you achieve that without a huge overhaul?

What is legal spend management?

Legal spend management is the system corporate Legal Departments use for receiving, approving and tracking invoices from their external law firms in real time. Even a simple legal spend management process will also include analysis of costs against budget to optimize legal resources and control spend.

Seven benefits of legal spend management for in-house Legal Departments

Putting a legal spend management system in place - irrespective of how simple it might be - will take some time investment. We would argue that the time investment need not be more than a single day, but even 8 hours within an extremely busy legal team schedule, must yield a rapid benefit for your Legal Department.

Within weeks of implementing a legal spend management software, you should see the following seven benefits:

1. Cost control

What gets measured gets managed. Real-time visibility over your costs will help your corporate Legal Department to rein in costs before they become a problem.

2. Time savings

A systemized way to receive, approve, circulate and forward invoices will yield immediate time savings for every person who touches (or who is cc'd to an email) an invoice.

3. Law firm relationships

Clear expectations of budget preserves this important relationship where it matters - focused on the legal advice you are paying for, rather than on invoice haggling.

4. Optimize legal resources

A clear understanding of your spend as distributed across divisions, categories of work and specific legal matters will help to identify where you get the greatest (and lowest) return on investment, setting the stage for resourcing adjustments to optimize your spend.

5. Better decision-making with legal analytics

Legal spend management provides in-house Legal Departments with data-driven insights and analytics, enabling more informed decision-making regarding budget allocation, external counsel selection, and resource optimization.

6. Increased efficiency

Track legal spend in real-time and streamline your legal operations. Legal spend management can help your in-house legal team make informed decisions regarding budget allocation and the performance of external resources.

7. Improved transparency

Ensure compliance with billing guidelines, reduce invoice disputes and back-and-forth with outside counsel.

Save time and control legal costs with legal spend management software

Seven signs your Legal Department need legal spend management urgently!

There are seven red flags to look out for that indicate you need a legal spend management software ASAP for your corporate Legal Department! Below are some reasons why your corporate Legal Department might need legal spend management today.

1. Regular cost over-run on individual legal matters

You are in the middle of a key, strategic legal matter, things are progressing well albeit a little intense, and your law firm is providing you with high quality advice. Without notice, your General Counsel asks you to report on costs to date. After you scramble to gather up all the invoices from your inbox and hastily put an Excel spreadsheet together, you are horrified to discover that you are 300% over budget. Again.

2. No real time visibility on costs

CFO to General Counsel: Can you please provide an estimate of year-to-date Legal Department costs? And how does that compare to this time last year?

General Counsel: Gulp. Blink. Blink. Gulp.

3. Budget over-run

Your in-house Legal Department has developed a bit of a reputation in recent years - it NEVER hits its budget. Your explanations are weak and amount to "legal costs are hard to estimate" but are not followed through with changes to process to minimize repetition. The C-Suite is getting impatient - or worse, dismissive.

4. Resourcing mismatches

You are aware that your team engage 'Large Law Firm' on a regular basis. They are good, reliable, and your relationship runs deep. If only they didn't cost (average) $900 per hour! And then you discover that a small, uncontroversial NDA was sent to them for a "quick review" and you see the invoice for $1800 come across your desk. Perhaps they don't need to do all your work and you could consider your other resourcing options?

5. Administrative hassle for the legal team

Your Legal team members are highly frustrated. They are wasting time on:

  • Opening invoices in their inbox
  • Comparing them against legal billing guidelines and cost estimates (stored somewhere else)
  • Replying to the law firm requesting adjustments
  • Opening again (repeat step)
  • Checking the delegated authority limits
  • Forwarding to the next person in the approval queue
  • Chasing the next person in the approval queue
  • And it goes on...

Not to mention all the times the law firm submits an invoice:

  • 12 months after the end of a legal matter
  • With an invoice date from 2 months ago (finance won't accept it!)
  • Well over the agreed cost estimate without seeking prior approval!

6. Administrative hassle for the finance department

Loading legal invoices into your payment system, or even just making sure that they are sent to the right person in your Finance team, can be an administrative nightmare. The Finance team regularly chase you for information, the right invoice, the invoice with the right entity, copies of approvals and so on.

7. Administrative hassle for law firms

You field questions from your law firms on a regular basis - has this invoice been submitted for payment? Is there a problem? Can you find out when it will be paid? And really, you want me to work until 11pm tonight to finish that new thing when you haven't paid for the last thing? Hmm.

There is definitely a better way for you to manage your external counsel spend.

Lawyer reviewing documents

Five steps to external legal spend management

  • Step 1: Set budgets for your Legal Department and legal matters
  • Step 2: Set billing guidelines for your external resources and law firms
  • Step 3: Implement a legal spend management software solution
  • Step 4: Run legal spend management reports
  • Step 5: Take action on your external legal spend
Let's go into more detail below.

Step 1: Set budgets

Your Legal Department budget matters (no pun intended). Take the time to build it properly. If you need assistance (and a template) then Xakia's white paper - 10 Steps to a Smarter Legal Budget - can walk you through the process.

More importantly for external counsel management, develop a system for setting and monitoring matter budgets. Legal matters can be unpredictable but they should be tracked, discussed and adjusted as required throughout the life of the matter. Even if matter budgets are initially exceeded on a regular basis, setting budgets helps you to understand whether your spend expectations are realistic and you can refine the process as you move forward.

Step 2: Set billing guidelines

Setting billing guidelines for external resources works for everybody. If your external firms know what they can - and can't - include in an invoice, it will make the process much cleaner and faster for all involved. There are multiple ways to implement this:

  • A simple list provided to your law firms
  • A set of agreed terms baked into your panel agreement
  • A modern matter management software that sets out the expectations on each engagement

Step 3: Use a legal spend management software

Create a clean, clear system for receiving, reviewing, approving and sharing external counsel invoices with your Finance Department. A legal matter management or spend management system will help you achieve full automation and maximize time savings, but even systemizing this process with agreed rules amongst your team can yield significant benefits. 

With a clear legal spend management software solution, you will be able to track spend against cost estimates in real time, noting immediately when invoices take you beyond your anticipated costs.

Step 4: Legal spend management reports

Running legal spend reports is essential for enforcing accountability across individual matter budgets, and also at the Legal Department level. Legal spend management reports should be configured to consider audiences such as:

  • Individual matter matter managers, to ensure costs are well contained 
  • Law firms, to ensure they are aware of and controlling costs in line with agreed rules and estimates
  • Business units, to ensure they are aware of their contribution to legal costs
  • CFO / CEO, to ensure they are aware of your cost control philosophies and practices

Each report should consider the micro and the macro of legal spend, to facilitate action where it can be taken, without losing sight of the big picture strategic goals.

Step 5: Take action on your external spend

With useful, real-time data on hand, your legal department spend is clearly mapped out. Now it is up to you to optimize your resourcing to ensure you are getting the best return on your investment. Whether it be internal legal resources, or external legal resources, making sure that the legal work requirement matches the resource capability, capacity and cost will help to keep your total legal spend under control.

Two happy people in a meeting

Avoid legal budget blowout with Xakia legal spend management software

Enjoy full transparency and understand where you spend money with Xakia's legal spend management software. Get in touch with the friendly Xakia team today for a demo.

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