A Brief Introduction to Legal Accruals Management

Lauren Lee | October 30, 2017 | Blog Posts

Many in-house legal teams are familiar with accruals, also known as unbilled estimates or the amounts that law firms estimate for work in progress. Unfortunately, unbilled estimates are difficult to collect, inaccurate more often than not, and almost impossible to track from submission to payment when manual processes are in place.

The Metrics Behind It All

We dove deeper into this issue and found that a mere 48% of law firms respond to requests for unbilled estimates from their clients. The reasons for low response rates can be attributed to law firms not understanding the importance of accruals, lack of training in how to calculate accruals, and unclear direction regarding when to submit accruals, to name a few.

When law firms do respond to unbilled estimates, there are issues with accuracy and timing. Our study revealed that there’s a 23% discrepancy between monthly accrual estimates and amounts actually invoiced by law firms.

Improving Accuracy and Response Rates Starts with Understanding the Types of Accruals

There are four types of legal accruals:

Many legal teams are familiar with accrual estimates and pending invoices, the most common types of accruals. However, there are two others that are often overlooked: rejected invoices and missing information.

When a law firm rejects an invoice or there’s no evidence of an invoice or estimate, finance must track down the correct information in order to pay the invoice. Unfortunately, finance doesn’t always have insight into the work that’s being done, billing guidelines, or which fees are typically accepted. This complicates and delays the accruals collection process, and makes it difficult to produce accurate accounting records.

When in-house teams have compliance from their law firms and legal ops software (with e-Billing and spend management capabilities) that support automated accruals collection, managing the different types of accruals can be done more accurately.

Is Finance the Right Team to Manage? Or Legal Operations?

When thinking about your legal department, who collects unbilled estimates from your law firms and reviews them for any red flags? For the most accurate accrual results and reporting, the legal team and legal operations should own this responsibility. They’re better positioned than finance to review invoices before payment because they work closely with law firms and are more in-tune to the work that’s being done.

Interested in learning more? Download our white paper, “Your Complete Guide to Accruals Management” and learn how to effectively collect unbilled estimates, work closely with finance and your law firms to produce accurate results, and replace outdated manual processes with automation from e-Billing.