Legal Spend Management: Why Spend Management for Legal is Different

Spend Matters is pleased to welcome a guest series of posts exploring spend management in the legal sector by Jeff Hodge, executive director at doeLEGAL. These posts will run every Monday afternoon for the next three weeks.

Legal spend management systems are now deeply entrenched as core technologies for law departments. Notable US companies are expanding their legal implementations to European subsidiaries in order to extend the proven benefits they have gained at home. General Counsel, CFOs, and CIOs are looking to legal spend management tools and best practices to decrease outside legal spend, increase internal efficiencies, and increase visibility into law firm value. Tools and data that allow general counsel to manage legal like their business unit peers are more important than ever. As this migration from manual legal invoice to automated electronic invoice handling has occurred, key distinctions between "horizontal" or "generalized" spend management providers (those that move summary or generic product invoices from suppliers of all types to a company's accounting or procurement group) and legal spend management providers are important for general counsel to understand, as they will inevitably be asked "why not just use the spend management system that procurement uses?"

This distinction will be increasingly important for corporate legal departments that choose to adopt legal spend management at the same time that other large sectors of their companies move to more general spend management solutions. This is because the generalized solutions that purchasing, accounts payable, and accounts receivable departments find so valuable are fundamentally different than the spend management solutions provided to corporate legal. In this instance, legal truly is different than any other part of the company.

Legal Spend Management's Value: The advent of legal e-billing and the spend management systems that support it marks a sea change for businesses worldwide. (Note that we use the terms e-billing and spend management interchangeably to describe only that component of spend management known as "procure-to-pay"). It is estimated that generalized electronic invoicing for corporations of all kinds is growing at a staggering rate, and accounted for some $4.1 trillion of all settlement transactions by the end of 2010; 19% of all such transactions. Clearly, moving from any paper-based system with manual processing to an electronic invoicing and spend management system provides value. Aberdeen Group has estimated that the cost of processing an electronic invoice is 60% less than the cost of processing a manual invoice and companies can gain an additional 17.5% in savings from improved revenue management, early supplier discounts and cost reduction programs. Given the weight of the many positive experiences of clients of generalized spend management systems, there is clearly more to the message than hype. These companies deliver value to their customers. This value is in some respects similar to the more tailored, value-add legal spend management solutions and includes:

  • Decreases in paper handling and storage costs
  • Decreased invoice processing cycle times
  • Decreased data entry errors
  • The ability to capture basic "header-level" information about the invoice

Additionally, horizontal spend management providers can deliver some network of suppliers ready to bill electronically. Such networks produce rapid ROI for corporate clients that receive these invoices because the services, like legal e-billers, come with some number of a client's suppliers already prepared to send invoices electronically through the client's e-billing provider. Generalized e-billers can certainly find ways to move invoice from law firms to legal departments, but these providers simply do not offer the range of features and functionality required by lawyers and legal department management. As valuable as generalized e-billing and spend management are to the corporation generally, these generalized approaches can only deliver a very narrow slice of the functionality offered by legal e-billing and legal spend management systems. What is not delivered marks the fundamental difference between legal spend management and corporate spend management.

Stay tuned for next week's post, where Jeff will dive into legal spend management's fundamental differences.

- Jeff Hodge, Executive Director, Corporate, doeLEGAL

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