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Invoice inflow and time spent on review

Each year, the law department of a $20 billion plus manufacturer in the Northeast processes from its 250 law firms about 26,000 invoices (one hundred a day!). The department requires its firms to submit a bill every month for every matter they are handling.

Suppose each invoice gets five minutes of lawyer review, at $150 an hour fully-loaded, and ten minutes of administrative time for data entry, copying, scanning, reporting, quality control and other steps, at $50 an hour fully loaded. The internal time cost of processing each invoice would be $20.83 ($12.50 lawyer time and $8.33 support time). For the torrent of invoices, this level of cursory review and minimal management handling reaches approximately $540,000.

Stated differently, the 2,100 lawyer hours shunted to bill review amounts to the equivalent of a full-time lawyer. (But see my post of July 31, 2005, about fictitious time savings and ROI on spam filters.)

In reality, from opening the envelope to mailing the check, the bill payment process takes more time and involves more people, such as accounts payable, and incurs more cost, for the matter management software and postage, for example.

Fixed fee arrangements shrink these transaction costs. (See my post of Sept. 14, 2005, about Cisco and 75% flat fee arrangements.)

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