5 legal spend management mistakes that you can solve with a spend management solution

Lauren Jennings | April 14, 2021 | Articles

Every year, legal departments spend 37% more than they had planned because of overbilling by outside counsel. The mistakenly added costs come from missed billing errors, complex legal invoices, or human oversight made by a tired in-house lawyer who had to pore over hundreds of lines of time entries from outside counsel.

While spend management can be a tedious job, it’s a necessary one because your company needs to know what your in-house legal team is spending and to justify those expenditures with results and return-on-investment (ROI). Luckily, there is an easy way to make spend management more efficient, more accurate, and less time-consuming: spend management software.

If you’re still on the fence about equipping your team with a spend management solution, here are some mistakes that you might be making and some solutions that a spend management software can provide.

1. You manually manage your legal expenditures

Manually poring over invoices, processing billing disputes, and analyzing spend data is time-consuming and inaccurate. The manual process of spend management can be boring and repetitive. In fact, more than 40% of office workers spend at least a quarter of their weeks on manual, repetitive tasks like spend management—time that could be used for innovation and learning, which are more beneficial to both you and your employees.

Apart from saving time and increasing employee satisfaction, automating repetitive processes can also greatly reduce human error. Manual approval workflows and processes lead to a higher chance for delays and for human error to occur. Wasting time and money on admin work means that legal departments have less time to address other tasks, like their unexpected increase in workload brought about by the COVID-19 pandemic.

How a spend management solution helps

The solution to decreased employee satisfaction and human error caused by boring, repetitive work is to automate the repetitive processes and remove them from your employees’ workflows. Spend management solutions automate admin work so that your employees can focus on other responsibilities.

Automation reduces human error and wasted time by 66% and 69%, respectively. By freeing up some time, your in-house legal team can focus on more important initiatives, like diversifying the legal industry or staffing your matters more effectively.

2. You have too many sources of truth

Having multiple sources of truth distributed across different members of your team makes it hard to visualize and compare data that can be used to make informed decisions. The more legal matters and invoices you have, the harder it can be to get visibility into what you’re spending on and with what firms.

Trying to operate with too many sources of truth is like trying to make one cake using five different recipe books — each recipe (source) might be right on its own, but they can’t all be right together.

In a company with too many sources of truth, each member of your legal team has their own spreadsheets, emails, reports, and documents to track invoices and projects from the outside law firms that you work with. With so many people talking to so many teams, it becomes easy for information to get lost, outdated, or overlooked. It doesn’t help that the members of your in-house legal team probably do not share every single email with each other, meaning that data can also exist in multiple silos.

If you don’t have concrete data, it becomes difficult to spot trends, make adjustments, and explain your decisions to your outside counsel.

How a spend management solution helps

A spend management solution will provide a single source of truth that will make it easier for you to make decisions based on data that you can see, understand, and easily access. The software can display high-level spending information so that you can make proactive decisions to control spending where appropriate.

A data dashboard that you are confident in and that clearly shows you what you’re spending and why will help you visualize outcomes and justify expenditures. It will also help your team determine ROI and make budgeting calls based on the data presented.

3. You aren’t enforcing billing guidelines

A lot of legal teams have billing guidelines but don’t enforce them due to a lack of tools or resources. The outside counsel guidelines (OCG) get drafted and sent over to your outside counsel, yet invoices are still sent over late and in the wrong format because your in-house legal team doesn’t have the capacity to ensure strict adherence to your stipulated OCGs by multiple outside law firms.

OCGs are only useful if your outside counsel adheres to them. Poorly enforced OCGs increase company spending and enable a lack of transparency and communication. For example, if you deduct 10% of fees because of a late invoice as stipulated in your OCGs, you can encounter problems if your outside counsel is unaware of those stipulations. Or worse, you let your outside counsel keep submitting late invoices and fail to enforce your OCGs because of a lack of tools.

Enforcing your OCGs means communicating frequently with your outside counsel and remaining transparent.

How a spend management solution helps

Automating the process of enforcing OCGs with a spend management solution will ensure that both you and your outside counsel are adhering to the OCGs. It can also help you and your outside law firms streamline the time-consuming invoicing process by providing a single invoice format that your outside counsel can easily fill in. This makes sure that you are receiving multiple invoices in a single, easily readable format for better processing.

Another process that can be automated with a spend management solution is sending a message to your outside counsel that explains why a certain charge was flagged or rejected. When a charge gets flagged or rejected, your outside counsel will automatically receive an email detailing the reasons for the flag or rejection to increase transparency and communication.

Enforcing your OCGs with a spend management platform will ensure both parties maintain a good working relationship while also reducing the chances for overbilling errors.

4. You focus too much on reducing spend

Companies are reducing spend on legal departments due to COVID-19, which means that legal departments have to rely more on in-house counsel rather than hire outside counsel. But cutting costs isn’t the same as spending wisely.

Reducing spending during COVID-19 is reasonable and expected. Nonetheless, it can be a mistake if spend reduction hinders the work of your in-house counsel and hampers their ability to produce meaningful results.

Rather than reduce spend, legal teams should focus on controlling spend to make sure that your money is going to the right places.

How a spend management solution helps

Saving money does not mean that you are performing better or more efficiently—it just means that your team has a smaller budget to get their job done. You can know which expenditures to cut or keep if you have a data dashboard that will show you what you need to know to make informed decisions.

Spend analytics dashboards by spend management software show how legal departments are protecting your firm and saving money in the long run. You get to see what you are spending on most, and it is important for you to continue doing so. Having a dashboard will give your team an easy way to generate and present expense reports to your finance team to justify legal expenditure and reimbursements.

The solution to increasing revenue and “decreasing” spend is by spending more efficiently. You can save money without cutting necessary costs by justifying those costs with data from a spend management software.

5. You don’t track accruals

Inaccurate accruals are surprising at best, damaging at worst. Outside counsel doesn’t always provide accrual estimates, and when they do, there is usually a 26% discrepancy between the estimate and the actual bill. And getting charged a quarter more than planned won’t be easy to explain to your accounting team.

How a spend management solution helps

Let your outside counsel know what the accrual estimate deadlines are by having that information in your OCGs and using a spend management software to set up automated reminder emails. Clear deadlines and communication around accrual requirements will help you stay within budget. Spend management software can also increase the accuracy of accrual costs by tracking data and generating a central dashboard for accrual estimates.

By tracking accrual estimates and comparing them with the actual accruals, you can present data to your outside counsel and further enforce your OCGs, if needed.

Achieve your business goals with a spend management solution

Spend management solutions exist to ensure that your in-house legal team is making the most of their time by avoiding repetitive work and human error while focusing on managing outside counsel relationships and achieving results that move the needle for your firm.

You can save both time and money while also increasing efficiency by equipping your legal team with spend management software.

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