How Legal Operations Technology is Saving Funds and Improving Efficiency for Finance

by Nathan Wenzel

Unplanned litigation and constant regulatory changes makes it difficult for legal teams to predict spend, causing increased frustration for finance teams.

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Corporate legal and finance departments have different responsibilities, but intersect when it comes to advancing a business’ bottom line and properly reporting estimates and accruals from outside law firms. Outdated paper trails severely hinder finance from obtaining accurate data and can affect an organization's overall profitability. Implementing technology benefits both legal and finance in ways that enhance budgeting, collaboration, accruals acquisition, and reporting.

A 2019 survey found that 77 percent of firms use profitability data to access partner performance and approximately 60 percent use it to analyze the profitability of individual clients. In today’s rapidly-changing, technologically-driven society, improving and using technologies advancing legal operations enhances overall efficiency for financial departments.

Legal operations technology generally comes at a lower lifetime cost to companies and greatly reduces errors and inaccuracies, allowing finance departments to focus on their specialty finances.  

Spend Visibility Drives Collaborative, Data-Driven Conversations

Unplanned litigation and constant regulatory changes makes it difficult for legal teams to predict spend, which causes increased frustration for finance teams. When finance doesn’t have visibility into what legal (or any department is spending), they are unable to effectively prepare an organization's budgets and forecasts. Along with causing financial discrepancies, poor budgeting and forecasting makes it difficult, if not impossible, to spot problem areas, respond to excessive costs, and determine the best ways to maximize profits. The entire business suffers.

Legal operations technology solves this problem, tracking spend from outside counsel to provide visibility and access to valuable reports and dashboards, which gives legal and finance a clear view of what is being spent, on what, and by whom. With concrete evidence of what’s working and what’s not, legal and finance can speak the same language, leading to more productive, data-based conversations. This makes it easier to effectively predict costs, allocate appropriate resources at the right time, identify opportunities to increase the bottom line, and most importantly, ensure that legal runs like a fiscally responsible business unit.  

Although spend management is a key focus for legal operations and cost savings often provide the quickest results, legal operations technology also provides value in regards to vendor selection and optimization. With access to key data points, legal can identify which law firms are working on what matters, the breakdown of spend if multiple law firms are working on a single matter, and whether or not a firm’s rates are consistently higher than others doing similar work. By evaluating vendor performance metrics, companies can initiate conversations with law firms to negotiate timekeeper rates and AFAs, simultaneously ensuring high-quality work and value. Legal and finance benefit by having more predictability into legal costs and it also opens the pathway for companies to build a preferred, cost-effective vendor list that ensures the best partners are used to assist a company in achieving its business goals.

Accurate Accruals Reduces Tension between Legal and Finance

Finance often leads the initiative to collect accruals from law firms who partner with a company’s legal department. Unfortunately, finance isn’t often familiar with the work being done by law firms and may accept an accrual estimate or bill from outside counsel, not knowing if it should be flagged or whether it is too high for the amount and type of work in progress.

The Head of Legal Operations at a Silicon Valley-based tech company was surprised at the end of a fiscal year to find out his legal department was way over budget. Finance was approving invoices without an understanding of what work was being billed and what the appropriate rates should be. So when one of the law firms reported an error, it went undetected by finance and wasn’t caught until year-end numbers were presented to the Head of Legal Operations who assumed his team was on track. Managing accruals more closely would have prevented this common problem that many legal and finance teams face.

If finance doesn’t have clarity into the work being done by outside counsel, it makes sense for legal departments (who are more familiar with outside counsel work) to own the accruals process and collect unbilled estimates from the law firms the department works with. Unfortunately, this means someone from legal must reach out to every law firm, connect with the right contact, and collect an accrual number within a specific time frame. It’s a frustrating and time consuming back and forth process.

In this scenario, legal departments are forced to rely on their law firms to estimate the cost of work based on the scope of a project and the timekeepers involved. If these estimates aren’t accurately reported, finance can’t manage the budget. Furthermore, incorrect and late accrual submissions from law firms lead to reporting issues, putting a company at risk for not adhering to mandated securities and financial requirements.

The use of a legal operations platform with e-billing capabilities introduces automation to limit inaccuracies and ensures timely accruals submissions. Legal teams can customize their accruals schedule in accordance with finance’s requirements so that automated reminders are sent to law firms on a company’s behalf to request accruals via email. The schedule can also be set to continue sending notifications until an unbilled estimate is returned. This streamlined workflow saves time and increases the accrual response rate, providing legal with the data it needs to evaluate a law firm’s ability to accurately predict a project’s cost and stay within budget. Finance benefits because it has the numbers they need to do their job. It’s a win-win.

Accrual data can then be stored in the legal operations platform, as a single repository for legal and finance to generate reports and glean insights on spend, budget, and vendor performance.

Greater Efficiency through Integration

Securities and financial requirements mandate all companies keep accurate accounting records. Legal operations software can be used by legal and finance to access key data points, matter and project status, and reports related to each department’s specific job functions. This type of collaborative system and ability to access reliable information from a single source, makes it easy for the two teams to proactively work together to ensure risk-reducing, organization-wide compliance.

Legal operations platforms that provide e-Billing solutions also often integrate with finance or AP systems, making the handoff between the departments even smoother. It can facilitate faster payment of invoices, allow departments to share information efficiently, increase spend transparency while decreasing manual processes, and reduce the number of errors that can occur.

By implementing technology platforms that take account of the needs of both departments, finance and legal can enforce business processes, ensuring billing guidelines and any negotiated AFAs or discounts are strictly followed. The two departments can also work together on a multitude of projects with open lines of communication and team up for more efficient preparation of month and year-end budgets and reports on the status of finances to stakeholders while ensuring financial requirements, like SOX, are met.

Why Implement Legal Operations Technologies?

When a legal operations platform is introduced, legal and finance can work together to develop a plan that will meet the needs of both departments and prevent potential issues from cropping up. Furthermore, a recent Bloomberg Law survey on the state of legal operations and legal technology found that among 500 legal practitioners across the United States, 87% expect their outside counsel to use appropriate legal technology to be more efficient, but less than 50% said they were prepared to respond to the demands for increasing technology usage.

Legal technology can provide huge benefits to corporate legal and finance teams, but not all technology is equal to every team. Organizations should always set strategic goals and objectives and discuss how they expect a specific technology to help them reach those goals. Putting together a thoughtful and comprehensive change management plan that includes collaborating with outside counsel to understand how technology impacts both parties, ensures a successful implementation that saves legal and finance time, money, and improves their organization’s bottom line.

Nathan Wenzel is the CEO of SimpleLegal