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AOL Case Study During its first year using DataCert's AIMS technology, AOL billed approximately $33.8 million in legal invoices. Since implementing the solution, the Internet company has identified nearly $4.35 million in invoice entries that were either outside of its billing guidelines or which had been billed to the wrong matter. AIMS also enabled the legal department to realize and track nearly $3 million in negotiated rate, early pay, and other discounts.

Fortune 500 law departments are constantly considering and implementing technologies to help them manage risk, drive increased customer service, become more efficient and reduce operating costs. The technology that has consistently delivered the most quantifiable upside is legal spend management. Law departments are being asked to cut costs and use fewer resources and many of the largest and most efficient legal departments have accomplished these objectives using a legal spend management system. The financial and operational benefits of electronic invoicing are well established. Selecting the right partner and adopting established and evolving best practices will ensure that these benefits are sustainable over the long term.

Why Legal Spend Management?

First, legal spend management systems provide an almost immediate cash savings. There is a long, well documented history of significant savings from incorrect billings, prompt payment discounts and the ability to identify variances from a law department's billing guidelines. These systems routinely yield "payback-periods" of between 6 and 12 months.

Legal spend management also provides a number of strategic benefits including comprehensive insight into a company's legal spend. While these benefits are more difficult to quantify, they may over time be even more valuable than the direct cash savings. Better analysis enables better sourcing and spending decisions allowing companies to choose the most efficient firms and better understand their overall portfolio of outside counsel spend.

For example, by identifying trends or "hotspots," a legal department can take preventive action to reduce risk. More information also allows for better financial controls and more accurate financial statements including more accurate reporting of liabilities and accruals particularly important in the Sarbanes-Oxley era.

The Basics of Electronic Invoicing

A key decision that must be made in selecting a legal spend management vendor involves security. Many companies believe it is crucial that all data remain behind their own firewall and managed by their own personnel. While ASP-based vendors represent that their systems are secure and encrypted, they primarily talk about this in the context of data transmission. Data storage, by contrast, on these systems often commingles all client data, is accessible from anywhere at anytime and typically stored in a clear-text format. This puts your company's legal and financial data at risk of public exposure. A spend management system with a dedicated database, hosting architecture and encrypted storage is the most desirable from a security perspective.

Another important aspect to consider in choosing a system is compatibility with other corporate legal systems. This differs from simple flat-file uploads or FTP transfers of data files. Tightly coupled integration capabilities between your spend management system and existing applications (for example, human resource, general ledger, matter management and accounts payable systems) are essential for long-term success.

Many law departments have been able to integrate with SAP and other corporate accounts payable systems to limit the errors and wasted time of additional data entry and provide an additional layer of financial control and analysis.

Perhaps the single most important factor in choosing a provider is experience. DataCert's Advanced Invoice Management System (AIMS), for example, is the legal spend management system chosen by 6 of the Fortune 10. DataCert focuses exclusively on legal spend management for large, complex law departments that are typically Global Fortune 500 companies. They have been at the forefront of many of the industry's innovations and have worked with their clients to develop many of the industry's best practices.

Maximizing Return-on-Investment

This level of expertise and experience leads to the optimal "time to value" for your law department. Within barely 100 days of contract execution, AOL was approving electronic invoices through AIMS. At savings of $7.33 million per year, each month cut from the implementation cycle saved them more than $600,000.

Efficiency improvements and better outside counsel management are two of the key benefits of legal spend management. But the readily quantifiable, hard-dollar savings provides a third: the ability for a general counsel to credibly demonstrate a level of fiscal discipline and associated cost savings previously unachievable. In an era when law departments are under immense pressure to cut costs, this is a clear "win" for any general counsel.

J.L. Novak, Assistant General Counsel at AOL and project manager for his department's Case and Matter Management Project, chose to implement electronic invoicing as the first in a series of integrated software applications. The primary goal was to enable better spend management and to improve operational efficiencies within the legal function. "Electronic invoicing produced an immediate, measurable return on investment while the other applications produced softer returns over longer periods of time," commented Novak.

"It was also a perfect first step in a much broader initiative - getting our lawyers and support staff away from the mess of paper invoices and into a system that employs the same logic as the other applications. Collecting spend data will lead to better informed decision making and measurable success in an enterprise-wide cost management effort. Implementing DataCert first was a key to our early success. It enabled us to demonstrate to executive management our commitment to cost management. We were actually able to fund the balance of our technology initiatives with the savings generated with AIMS."