You may have seen the recent article in The Lawyer Monthly, which discovered that many legal departments did not know how much they spent on external legal counsel leading to confusion, strained internal, and client relationships and mass overspends on agreed budgets.
Justine Davies, Lawrence Grant's Tax Adviser who has spent over 30 years specialising in this sector, is not surprised: “In this technological fuelled world we now live and work in, most legal accounting software enables a ream of reports to be produced at the monthly reconciliation points in time.
Being faced with such an overwhelming array of reports, which should benefit the running of any legal firm, it has become a daunting task for legal teams, let alone an accounting one.”
Knowing your costs of out-sourcing is of primary importance when putting together a quote or on-going budget:
- Do you know the costs, (more importantly the hourly rates), of the locums and barristers your firm uses?
- Do lawyers explain to their clients at the outset the varying costs of when a case may run smoothly and when it may not?
The legal path is wrought with twists and turns that a client will very unlikely be aware of, which is why they rely on the lawyer to explain all.
As registered auditors, we review numerous files where clients have complained about being kept in the dark about rising fees and disbursements. This has led to high amounts being written off, which is frustrating for any legal firm, as clients have benefitted from knowledge and time, but “keeping them in the loop” has fallen by the wayside. The client then refuses to pay their bill regardless of the work and time invested to enable them to be in a more positive position, as all they can see is the total amount on the invoice raised.
What is the answer?
Well, any in-house legal accounts department must be prepared to spend an enormous amount of time reviewing and understanding the reports produced, to enable the fee-earners and partners to be routinely informed and educated.
- Be observant and spot where a firm maybe failing in a specific area
- Be aware of when invoices are raised incorrectly. Clients may be concerned with all elements of their invoices and possible over-charging.
- A simple full stop or zero in the wrong place can be catastrophic, especially for larger law firms, where the services rendered are in their millions.
- Regularly advise their various legal departments of the changing rates for external services used.
- Fee-earners should regularly check their WIP and advise clients where a move away from the agreed quote is necessary.
The accounts department has significantly more information at its disposal than it ever did even ten years ago, and with that, more pressure to get it right.
As the article highlights, as these new technologies become more embedded within the legal sector, we will start to see far greater transparency on legal spending, which should reduce spending errors thanks to an accountable system that shows what is being spent and where. This is a 'wake up call' for in-house legal teams to restore faith and modernise, or they risk falling further behind every other sector now using digital technology to improve business functionality.
We will be keeping an eye on developments…