3 ways spend management software helps you improve legal spend oversight

Kara Wen | October 26, 2021 | Articles

A 2020 survey of in-house counsel found that while 73 percent of corporate legal departments were “concerned” about their overspending on outside counsel, the majority of them didn’t have adequate resources to effectively track their legal spend. This disconnect results in thousands of dollars lost, as busy legal ops teams don’t have the time to assess each and every spend issue and opportunity across multiple sources.

Enter legal spend management systems, digital tools that consolidate spend data in real-time, automated dashboards. They give teams quick, comprehensive access to and control over spend. This helps legal ops prevent financial losses and spend smarter — and most systems don’t even cost 1% of a total legal budget.

Keep reading to learn about three key functions of spend management software that will save your team headaches while saving money for the business.

1. Legal spend management systems enforce billing guidelines automatically

Vendor noncompliance with billing guidelines or outside counsel guidelines is one of the fastest ways to drain money from your company. Expensive errors like double billing and overbilling quickly slip through the cracks when legal ops teams have to manually review hundreds of billing line items across spreadsheets and invoice stacks.

A legal spend management system makes it much easier to identify costly noncompliance issues and prevent unnecessary legal spend. You can upload your billing guidelines to the software so it’ll automatically check invoices against them, flagging ones that don’t match your established rules. For instance, it can catch if a law firm submits an invoice that isn’t in the correct LEDES format.

Additionally, legal spend management systems automatically notify law firms when there’s an e-billing problem. This ensures you can proactively work with vendors to resolve errors instead of scrambling to fix things at the end of a quarter, which will negatively impact both your spend budget and your working relationships.

This automatic invoice review takes the pressure off you and your corporate legal team — you don’t have to dread explaining to your general counsel that your budget is off because of unchecked compliance errors. Additionally, because you can track recurring instances of vendor noncompliance in a spend management system, you can use it as an objective performance metric to determine your company’s return on investment.

2. Legal spend management systems streamline accrual management

Similar to how it enforces billing guidelines to optimize spend, a legal spend management system transforms the notoriously time-consuming and error-prone process of managing accruals through automation.

It collects all law firm accruals in one place and will email firms that haven’t sent in their unbilled estimates throughout the entire accrual window. Since you can quickly review accruals, you can reach out to vendors in advance to discuss and adjust legal costs before the final invoice rolls in.

Spend management solutions also help you optimize spend with reporting options that display vendor accruals vs. actuals. You can then objectively see which law firms deviate the most from their actuals and can use this information to start a conversation with them on how you can collaborate to make the process more accurate.

There’s an average 26% discrepancy between accruals and final invoices, so if there’s no system to proactively monitor accruals, legal and finance will be equally surprised when unexpectedly high legal invoices arrive. This leads to inter-department tension because legal can’t answer why the charges for legal work are higher than anticipated, and then finance or legal has to reach out to vendors to figure it out.

Legal spend management systems relieve strain between your team and finance because it’s much easier for legal ops to proactively identify and address accrual issues. This means that finance doesn’t have to take the lead, which is beneficial because the department doesn’t work with outside counsel as closely as legal ops does.

Additionally, legal spend software streamlines workflows between departments, giving both teams access to a central database where they can see what’s going on with accruals. This means that both departments can do their jobs more effectively and concentrate on optimizing spend rather than using their time putting out financial fires.

3. Legal spend management systems increase spend insight for more data-driven reporting

HBR Consulting found that data analytics was listed as a “high or medium” priority for approximately 60% of surveyed corporate counsel. Legal spend management solutions make it easier to thoughtfully analyze spend data with centralized, end-to-end visibility into your legal costs. This means you can bring more strategic information about financial trends, risks, and cost-saving opportunities to your spend reporting.

As noted in Legal IT Insider, legal spend management systems help teams to move from “‘How much are we spending?’ to ‘Why are we spending that much?’ and ‘Is that the most efficient way to spend it?’” Since you have just one source of truth, you can quickly get a clear dashboard overview of legal spend and also drill down into different critical aspects, like spend by practice area, timekeeper, and UTBMS codes. Spend management software also integrates with other tools used by legal ops, so spend data updates in real time.

These functions take your spend reporting to the next level and ensure your recommendations are firmly backed by spend data and not educated guesswork. This means your company leaders have what they need to steer the company in a better direction for financial success. By giving your C-suite these strategic insights, you affirm the value of legal operations as an asset to the business.

Like enforcing billing guidelines or managing accruals, conducting granular spend analysis is much harder to do without legal spend management software because you have to manually track and compile financial information across multiple sources. Additionally, since there’s no real-time updating in tools like spreadsheets, you’ll run into gaps when team members get too busy to stay on top of timely data entry. This limited visibility leads to less accurate spend reporting, which impacts the effectiveness of spend decision-making by your general counsel and C-suite.

The financial benefits of legal spend management systems outweigh their cost

While some companies resist bringing on legal technology because of its upfront cost, refusing to do so hurts your bottom line much more in the long run. Technology leading law firms and business service firms are significantly more likely to report higher profitability than transitioning or trailing firms. See how much your company stands to gain from investing in a legal spend management platform with our savings calculator.

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