The beneficence of quicker bill payment

When Johnson & Johnson’s law department got its e-billing system up and running, the department benefited from the “reduction of confusion in payment,” according to Corp. Counsel, Vol. 15, May 2008 at 75. The law department finance manager estimated that the department “cut a good month out of the payment cycle.”

Now, inquiring minds want to know, why is it better for a law department to dispense its cash more speedily? Interest earned on the float isn’t the reason. A department gains nothing from invested funds that are later paid a law firm or vendor. A company may be able to conserve cash and earn some interest during the delayed period but not a law department.

To the contrary, shorter cycle times might help a law department if it has prompt-payment discounts from its firms (See my posts of Oct. 25, 2007: prompt-payment discounts are infrequent; May 4, 2005; Aug. 24, 2005; Aug. 27, 2005; Sept. 14, 2005; Oct. 14, 2005; and Oct. 15, 2005: prompt payment schemes; June 11, 2007: full review and end-of-year larger discount; and June 20, 2007 on prompt-payment discounts.).

But expeditious review and payment of bills also brings other benefits. There is less chance of misplacing bills if you get them off the lawyer’s desks and into accounts payable. Spending reports from you matter management system will be more current. With quicker review there are less likely to be duplicate payments or questions about whether a bill has been paid (See my post of May 8, 2007: duplicate payment of invoices.). Then too, when it comes to processing bills, law firms prefer quick clients to dilatory clients.