Marilyn Chenault Minot, CEO of Disbursement Management Associates, brought to my attention her article entitled “Lawyers Become Unwilling Bankers” in the Nat. L J., Sept. 2006. I summarize below her comments.
Minot explains that the average length of time an AmLaw100 firm is out-of-pocket between payment of expenses and repayment by clients is approximately 120 days. Given the amounts of expenses they bill, these firms therefore finance $15 million every day for carrying expenses, which ties up their partners’ capital or credit. The carrying costs have, up to this point, had to be recovered in higher billing rates, which penalize clients who are not taking advantage of this free float provided by their law firms.
Law departments face two problems with this situation. First, if you pay invoices to your law firm on a timely basis, you risk being over charged because of the higher hourly fees, which are applied across the board. Second, if your legal matters use a small amount of these expenses, you risk being over charged because you are subsidizing other clients who pay late or use large amounts of these expenses.
Using patented methodologies, Minot wrote to me that Disbursement Management Associates markets a solution to legal departments. With its application, Minot says, you can ask for cost reductions from your firms, perhaps in the form of a billing rate freeze for a specified period of time.