Law firm management

31% of companies are unsatisfied with the price-performance ratio.

Very different levels of satisfaction with the price-performance ratio

Law firms assumed that none of their clients are unsatisfied, and predicted that 92% are at least satisfied. In reality, 31% of their clients are unsatisfied. Half of companies are satisfied with the price-performance ratio, and 8% even report being very satisfied.

Billing issues are the main reason for changing law firms

A quarter of all companies who change law firms do so because hourly rates are too high. Other oft-cited reasons are excessive billing and a lack of cost transparency. Only one quarter of all changes are not motivated by billing issues.

Companies want law firms to take more risks, to be more entrepreneurial, and to assume responsibility for results.

Desire for more risk taking and entrepreneural thinking

The companies wish for more risk-taking, economic pragmatism, entrepreneurial thinking and willingness to assume responsibility for results from the law firms. They further ex- pect full billing transparency, itemised service invoices, and for law firms to reduce hourly rates by lowering their total overheads.

The law firms want fairer treatment, a more open attitude to billing discussions, and more performance-based compensation. They also want clients to recognise that high quality output requires time, thus justifying high hourly rates.

Need to overhaul pricing models

Although all interviewees use the hourly-rate model, it is only favoured by 62% of companies. Both law firms and companies want to dramatically revise billing practices according to RVG (lawyer remuneration law). Of the companies, 69% would prefer fixed prices and 46% would favour price ceilings – both figures much higher than in the past.

Currently, 38% of companies negotiate framework agreements. This number is supposed to rise to 46%, whereas only 33% of law firms want to have framework agreements.

Although a third of law firms offer bonus-penalty ar- rangements, only 8% of companies adopt them. This pricing model should become much more popular among companies in future.

46% of companies are not satisfied with transparency of billing 

This is the topic that law firms misjudge the most. Even though only 8% of companies report being very satisfied with law firms’ transparency, law firms themselves believe the number to be 37%. Although 8% of companies report being very unsatisfied and another 15% unsatisfied, none of the law firms are aware of this dissatisfaction among their clients.

Structure of invoices offers avenue for improvement

Services billed in terms of time are listed on the invoice by the minute by 67% of law firms and by the hour by 33%. Almost every law firm also details the participants, date and a few keywords as their standard procedure for the ‘substantial description’ section of their invoices. Companies do not however find this sufficient. More and more com- panies would like to see a more substantial description, including the results of the firm’s activities, on their invoices. They would prefer to see an executive summary at the beginning of an invoice as well.

Long time needed for invoicing 

Each lawyer at the law firms spends an average of 15 minutes recording their hours each day. They bill an additional 60 minutes for issuing the invoice at the end of every contract. This adds up to 3% of lawyers’ productive work hours.

Clients have become more frugal regarding lawyers' expenses

Only 23% of companies stipulate a proportional lump sum during billing. Regarding flights, 58% stipulate their legal advisors fly economy class, while 42% approve business class trips. Regarding train journeys, first class outweighs second class at 67% to 33%. Hotel budgeting is more varied: 11% of companies will pay for rooms costing up to €100 per night, 67% those up to €150 per night, whereas the remainder do not set any limits. As regards expense accounts, one third of companies allow lawyers a fixed allowance, while one third pays according to individual receipts.

Cost estimate wanted in advance 

Of law firms, 56% do not send a fee estimate beforehand, 19% do so only occasionally and 22% send one regularly. In contrast, 38% of companies would prefer to have such a cost estimate.

Shorter billing cycle needed 

Three quarters of companies want to receive monthly invoices, while 50% of law firms still bill either quarterly or per client. In 8% of all cases, billing is still done on a yearly basis, which companies no longer want.

More electronic billing wanted

More than 96% of law firms send their invoices by mail, and 15% also send them by e-mail. Since a third of companies prefer their invoices to be sent by e-mail, there is room for improvement in this area. Electronic billing, using an online form, is only used for 4% of all invoices.

Date of payment

Astonishingly, 33% of invoices are sent without stipulating a date by which payment is due. Of those that do specify a payment period, 30% of invoices are due immediately, 15% are due for payment within 14 days and another 15% within 28 days. The receipt of payment occurs after an average of 27 days. If a dunning letter becomes necessary, a dunning process is started, albeit erratically and unsystematically.

Invoice verification within the company

Even though the legal department revises the invoices in 75% of all cases, and the corporate divi- sion that contracted the legal work is itself involved in a third, important details often go unex- amined. Companies allocate an average of 2.4 hours for the revision of invoices.

Every fifth invoice is rejected by the companies, and then reduced by an average of 12%.

One of five invoices is rejected

Every fifth invoice is rejected by the companies. These invoices are later reduced by an average of 12%. More than 90% of law firms say they are cooperative during price discussions. However, only 54% of companies report that law firms behave coopera- tively, while the remaining 46% even call them dismissive of discussions.

How do companies reduce their legal budgets?

The favoured tool of companies is the pitch. One third of law firms claim to have lost pitches because their hourly rates were too high. Companies also often mention fixed lump sums, a general reduction of hourly rates, as well as quantity discounts.

11% of law firms claim that the clients’ payment behaviour has deteriorated owing to the financial crisis.

Budgets for legal advice stagnated in 2009

An average of €4.6 million was spent on external legal advice in 2008, with individual figures ranging from €200,000 up to €16 million. The budget will change only slightly in 2009, at a rate between -10% and +7.5%.