Welcome back to the Big Law Business column on the changing legal marketplace written by me, Roy Strom. This week, we look at how a major law firm built a more efficient billing and collections department—a crucial bulwark against a recession’s fallout. Programming note: This column will be off next week. Sign up to receive this column in your inbox most Thursday mornings.
DLA Piper is one of the largest law firms in the world, and over the years it has built a billing department to match.
The firm’s Tampa Bay office is home to about 40 billing employees, with another 40 or so billers spread across the country. Together, they help the firm send out nearly 170,000 invoices a year—more than 460 a day—an integral part of the process that helped the firm bring in $3.11 billion last year, according to AmLaw rankings.
DLA Piper’s billing department has grown because its staff has largely paid for itself by making the billing and cash conversion process more efficient, said Bob Bratt, the firm’s U.S. chief operating officer. Bratt believes the firm sends more bills per year than any other U.S. law firm.
Still, every human-centric process has an efficiency ceiling. That’s why Bratt and U.S. Chief Financial Officer Aydin Akbora developed three digital tools that display DLA’s entire billing process, from how much time lawyers are entering to how much money is coming in the door. The duo say the tools, which predict what clients will pay if nudged, were planned long before the pandemic and rolled out just in time to help blunt its impact.
“Because we had this tool developed and because we were much more targeted in how we reach out to clients rather than dialing for dollars, our cash has held up tremendously well during this time,” Bratt said in an interview.
Every law firm wants to collect 100% of its bills, but most actually bring in somewhere in the low 80% range, a number that has been in decline since the Great Recession. The slippage is far from trivial. I wrote last year that in 2018 the discounts AmLaw 100 law firms provided clients—either upfront or through clients refusing to pay portions of bills—totaled up to more than $4 billion.
That’s about $200,000 per AmLaw 100 partner.
A looming, pandemic-driven recession threatens to exacerbate that slippage by increasing the number of cash-strapped clients who are unable or unwilling to pay full freight. Not too long ago, I wrote:
Some portion of legal work that clients used to consider utmost priority will no longer be, as law firms love to say, “bet-the-company,” industry shorthand for work that costs a lot of money.
Amid new scarcity, client resources will be reallocated. Law firms will be impacted. Clients will want price relief in the form of discounts or flat fees. They will want lawyers to stop working on certain matters altogether. And they will stop doing some activities that used to keep highly paid lawyers busy.
Bloomberg Law’s Meghan Tribe dug into whether that has happened so far this year. She found some firms have been pleasantly surprised that their worst-case predictions for cash flow have not yet come true.
Law firms initially projected an 11% lengthening in the time it takes to collect bills in the second quarter, according to data from Citi Private Bank’s Law Firm Group. But that projection was reduced to an 8% lengthening of the collection cycle after seeing a 5% lengthening in April.
Longer collection cycles can make it harder for law firms to budget or anticipate future revenues.
“This has shown to firms the benefit of a more rigorous approach around how they bill and how they collect,” Gretta Rusanow, head of advisory services for the Citi Private Bank group, told Meghan.
At DLA Piper, the dashboards came online just as the firm’s billers began working from home. The move to telework meant billing staff could no longer rely on a crucial bit of information: An eye-ball count of how many invoices are stacked up on employee desks. To analyze the firm’s current operations and to predict future cash-flow, they needed better insight into where the physical bills were, Bratt said.
“Whether they were on an attorney’s desk. A secretary’s desk. A billers’ desk. Whether they were out at the client,” he said. “Exactly where the bill was, that’s what we needed to find out.”
Bratt’s three new tools do just that by tracking time entry, bill generation, and the collections process. The tools generate data on timekeepers and clients, providing a real-time window into changes that occurred during the pandemic.
The technology has also helped DLA Piper’s collections team predict which clients will be more likely to pay up if approached by the firm. It tracks the number of days specific clients usually take to pay bills. If a client who normally pays within 30 days goes, say, 40 days, the system can alert an employee to call the client.
Efficiency in DLA Piper’s cash conversion process saves the firm money by allowing it to borrow less to cover its costs throughout the year, Bratt said. By bringing in cash more quickly, he said the firm has trimmed weeks off of those borrowing costs.
“Instead of being reactive, this makes us proactive,” he said. “Five years ago, you’d get to the end of the month and you figure out the month was lousy. Now we understand exactly where the business is on any given day.”
Worth Your Time
On Juneteenth: A long list of Big Law firms will observe June 19 as a work holiday in recognition of the effective end of slavery in the U.S. Some question whether firms’ commitment will last, and ask what more could be done to make the law a more diverse profession.
On Big Law Moves: White & Case hired Tara Lee, co-chair of the national trial practice at Quinn Emanuel. King & Spalding opened a Northern Virginia office near tech and aerosapce clients in Tyson’s Corner.
On Working From Home: Seyfarth Shaw launched a tool this month that collects data from employees’ remote computers, an e-discovery product that will come in handy as employees work from home.
That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.