Understanding billing format standards is key for professionals in corporate law, insurance defense, or those looking to join fields heavily reliant on e-billing.
If the mention of electronic billing conjures feelings of confusion or intimidation, rest assured that you’re not alone. The nuances of e-billing formats are daunting in a field brimming with acronyms and complexities. LEDES, or the Legal Electronic Data Exchange Standard, is a leading format designed to standardize billing communications between law firms and corporations. However, its significance is part of a broader legal e-billing landscape that includes other standards like Litigation Advisor and TyMetrix, each with distinct rules and formatting challenges.
To demystify these complexities and shed light on the challenges within e-billing, we sat down with Shari Borek, President of Borek Consulting Group, and Claire Barnes, President of Integrated Visions. Their extensive experience in electronic billing and legal software equips them with unique perspectives and insights into these systems.
Understanding billing format standards is key for professionals in corporate law, insurance defense, or those looking to join fields heavily reliant on e-billing. If you’re looking for a straightforward and informative guide to e-billing, you’ve come to the right place. Let’s dive in and learn together.
LOC and LEDES: Introducing Standardization to Legal Electronic Billing
The 1990s was a transformative decade for the legal sector. Prior to that point, there was a noticeable lack of standardization in billing processes. Different corporations and their legal partners often used varied billing systems, leading to inconsistencies, confusion, and billing delays.
To address this, representatives from the American Bar Association, Association of Corporate Counsel, and PricewaterhouseCoopers united in 1995. Their collective goal was simple: create a standardized system for electronic billing that would benefit both large corporations and their partnering legal firms, ensuring consistency and clarity in billing processes. This collaboration established the LEDES Oversight Committee (LOC) and the Uniform Task-Based Management System (UTBMS).
LEDES 1998B is the most widely used LEDES billing format standard in the United States. Still, it’s not uncommon for firms or clients to add non-standard customizations. Our experts agreed that the LEDES format is at the forefront regarding electronic billing. Barnes likened its ubiquity to how “Kleenex” is for tissues, highlighting its dominance in the legal billing space. In addition, over the years, other formats have emerged from companies like TyMetrix or Litigation Advisor, formerly known as Legal Solutions Suite. These other formats differ in the matter-specific information that they gather, but all require processing and uploading to the audit house for further review.
Automatic processing isn’t the sole advantage of electronic bills for corporations. Barnes drew attention to the challenges brought on by sheer volume, stating, “Imagine you’re a corporation receiving a 100-page bill from a legal firm. Reviewing just that bill to discern your spending could take months.” Borek jumped in to underscore the depth of the volume challenge: “It’s not just the 100-page bill you’re processing. It’s hundreds of smaller bills, too. It’s volume in either direction.” She continued, “Corporations want to see where they’re meeting budgets, where they’re exceeding budgets, and if the law firm is following the billing guidelines and spending their time appropriately. It essentially allows clients to get analytical with law firms.”
With electronic billing, there’s less surprise in billing, especially since law firms are often required to submit a budget estimate of their legal expenses before the case starts. It increases accountability on both sides while decreasing manual work. This is where the file’s detailed breakdown becomes crucial.
While any company can require electronic billing formats, it’s typically found in practice areas like insurance defense, intellectual property (patents and trademarks), bankruptcy, or firms that serve large corporations.
What Is an Electronic Audit House Bill?
Electronic audit house billing and emailed bills are the same, right? Not so fast. The notion that the two are the same is a misconception. Borek and Barnes were keen to clarify. “A lot of people confuse the two,” Borek pointed out. “There’s a key difference between e-billing and emailing bills. A very specific format is required for electronic billing to be processed, and it differs significantly from a typical bill you might email.” She elaborated, “The emailed bill requires manual processing by a human, while the electronic bill is processed automatically without human intervention.” An emailed bill is in PDF format, and an electronic bill is uploaded to a website for audit review.
An e-billing file is a transparent window into the legal work rendered by a firm. It meticulously details billing dates, the specific timekeeper involved, their role, descriptions of each task, the time spent, and the corresponding cost. This comprehensive breakdown allows corporate entities to audit and understand every expenditure. With such granular insight, legal departments can assess the value derived from tasks and adjust future spending accordingly.
Once received, this file is cross-checked against specific billing guidelines the client sets. For instance, an insurance company might stipulate that they won’t cover local mileage or block billing, or they may cap the maximum hours a lawyer can work on a case in a day. These rules vary from client to client. As Borek says, “It’s essential to follow the client playbook or portions of your bill may get rejected.”
“Navigating the e-billing transition without guidance can be challenging. CARET Legal simplifies the e-billing invoice process.”
Components of an Electronic Bill
There are several components of an electronic billing file. The Header includes specific information regarding unique identifiers for the matter, like the Law Firm Matter ID, Client ID, and matter description, as well as invoice-specific information, including fees, costs, invoice dates, and totals. These items are unique to the format required. For example, a LEDES file typically has 24 header fields, while a Litigation Advisor file requires 14 header fields. The magic happens when your legal software interprets the information within the matter and automatically populates it in the format required.
UTBMS Codes are required for each time and expense entry before submission. There are a variety of code sets, including litigation, project, bankruptcy, etc. Visit UTBMS.com to learn more about code sets.
LEDES 1998B file
The Process
After creating the electronic file, the law firm needs to navigate to the next step: submission. Borek clarifies, “The audit house becomes the intermediary in this process. They’re the ones you send the electronic billing formats to. Whichever format both the audit house and your client prefer is what you’ll need to adhere to. Legal practices don’t get much flexibility in this regard.”
So, once the law firm generates the file, usually via specific software, it’s dispatched to the client’s chosen audit house. Here, it undergoes a thorough review based on the client’s predefined rule set, leading to either acceptance or rejection. While this system is designed for efficiency, it’s not uncommon for hiccups to occur during the process.
Note that while the firm may have multiple clients requiring e-billing format submissions, each client may have chosen a different electronic billing provider and website.
The Challenges of Transitioning to E-Billing
E-billing, though beneficial for corporations, introduces hurdles for law firms. It demands an added layer of data management, with rules that differ per client. Law firms aren’t voluntarily making this shift; they’re compelled to. The transition can also be abrupt. Borek noted, “A firm’s attorney or billing department may suddenly receive an email about the new billing system. There might be room for a brief grace period, but the change can be jarring. It’s a format introduced only when mandated.”
Barnes elaborated on the miscommunications: “Vital emails can be overlooked, leading to delays in the transition. Firms might proceed with their traditional billing, only to face unexpected rejections or payment delays.”
Borek emphasized this point, noting that firms might be caught off-guard, realizing they missed the shift months prior and now need to scramble to get additional information about their matters, recode their time entries, and resubmit their bills in the new format. “It’s not just about being informed of the change. While attorneys might be in the loop, the billing department might remain in the dark until rejections of traditional invoices start coming in.”
“Navigating the e-billing transition without guidance can be challenging.” Both Borek and Barnes stress the importance of expert consultation in the e-billing transition, suggesting engaging an experienced ally. Barnes adds, “It is easy to become overwhelmed. Collaborating with experts can spare firms considerable time and missteps. We offer the advantage of experience and foresight, helping to avoid common pitfalls.”
So, how can firms effectively maneuver the e-billing landscape? Enter CARET Legal.
E-billing is intricate, and law firms greatly benefit from tools designed to clarify and simplify this process. CARET Legal stands out in this regard. Barnes succinctly states, “CARET Legal simplifies the e-billing invoice process.”
CARET Legal offers nuanced time entry rules tailored for e-billing, guiding firms through corporate billing’s intricacies. The system actively prevents mistakes, such as incorrect terminology leading to invoice rejections. Their dedication to refining the software based on feedback is evident. Barnes and Borek both praise its adaptability. Borek mentions, “A recent feature in CARET Legal, which offers enhanced flexibility in LEDES file naming, was a direct result of our feedback.”
CARET Legal’s core strength lies in its simplification mission. It adeptly handles tasks from time entries to e-billing code integration, enhancing the billing process’s efficiency. Its budgeting tool stands out, offering actionable insights over mere data.
What Sets CARET Legal Apart?
Borek spotlights a significant benefit of CARET Legal: the ability to edit and resend an electronic invoice without restarting the billing process, a feature other tools often lack, leading to wasted time. This is especially crucial for firms still acclimating to LEDES billing.
The tool’s adaptability shines through its support for multiple formats and consistent enhancements based on feedback. Barnes emphasizes its budgeting prowess, aiding firms in effectively overseeing their billing against set targets. Moreover, the billing data’s exportability ensures it’s available to all concerned parties.
With its flexibility, structured entries, innovative budgeting system, and customizable e-billing codes, CARET Legal provides an all-encompassing solution for e-billing invoicing. It’s not just a tool for law firms—it’s a strategic edge in the complex world of e-billing.
Written with help from our CARET Legal partners, Claire Barnes and Shari Borek. Claire is the founder and CEO of Integrated Visions, Inc. and has helped thousands of legal firms tailor their law firm software to their way of doing business. Shari is the President of Borek Consulting Group, which helps law firms maximize their revenue with effective practice management tools, including time tracking and billing solutions.
