In recent years, growth in the sector has slowed due to a decline in Mergers & Acquisitions and a reduction in existing and potential clients. This has resulted in increased competition and has forced law firms to identify new ways to find profitability.
For some, the response is to focus on the cost of external counsel and to restructure hourly rates. Many more firms are unbundling their services so that repetitive, low-value work can be done through the use of technology or outsourcing services.
Others are embracing change in the nature of work e.g. tackling emerging markets such as India and China that are bringing IP considerations.
Meanwhile, the function of in-house lawyers has been transformed, and they are centre stage of the business; which was not the case a few years ago.
However, there is another option for law firms with a genuine commitment to trying to do things differently: take a closer inspection of the systems, processes, and controls for the company’s spending.
At first sight this may not seem "high profile" enough to get management attention. Yet, research suggests that organisations need to reduce just one dollar of non-payroll costs to have the same impact on profitability as generating five dollars’ of new business revenue.
Spend Control is proven to be one of the easiest and fastest ways to reduce excess costs. It provides more control and accountability over operating profitability by increasing the efficiency gained from each dollar of revenue and controlling each revenue of spending.
Spend Control initiatives deliver three types of cashable savings:
- Secured savings – where favourable terms of purchase are acquired through changes in pricing, mix, demand or quality and increased contract compliance.
- Mitigated savings – delivered by an ongoing program of cost and risk avoidance
- Cash-releasing efficiencies – direct financial savings where money is chosen to be released from efficiency gains.
Spend Control also generates non-cash releasing efficiency gains by improving the performance of available resources – adopting best practice, improving business process, etc.
Some of the opportunities for law firms include:
- Maverick spend: Many firms do not insist on an authorisation signature or approval process before goods or services are purchased. Consequently, invoices turn up unannounced – after the firm has been fully committed and the money is spent. AP then has to chase down the originator, determine if it is an internal charge or disbursement, and code it accordingly. This is extremely inefficient.
- Unnecessary write-offs: Nothing is more frustrating than writing off legitimate client expenses, yet many firms find themselves in this position. One cause can be the log jam of "mystery" invoices handled by AP at the end of the month. Lost, miscoded, or delayed disbursement invoices can miss the billing cycle, and therefore, the billing window.
- Manage disbursements: Law firms have significant costs tied up in disbursements; monies which they have to pay to third parties to help prepare for client cases e.g. court fees, stamp duty, fees for medical or other expert reports. Often when a cheque payment or ACH is raised on behalf of the client, it is inappropriately managed and ultimately suffers from not being recovered.
- IT expenditure: IT is often the single largest spend area in law firms and requires close scrutiny. Too often IT expenses are buried in employee expense reports, hardware and software is purchased when similar items already exist elsewhere in the organisation, and there is limited visibility of potential assets. In addition service and maintenance agreements are poorly managed.
- Aggregated spend: In most law firms, purchasing is dispersed across the organisation and fragmented across numerous suppliers. This means law firms are not leveraging quantity discounts and preferred contracts – a major source of instant savings.
- Outsourcing agreements: In spite of the trend towards outsourcing and subcontractors, few law firms have formalised procurement processes when selecting services and even less run a similar process when renewing existing agreements.
- Contract compliance: Contract and supplier relationship management are key Spend Control areas to tackle for law firms. Nothing is worse than one of their many high value contracts auto-renewing without the chance of review, renegotiation or cancellation; nor when supplier qualification is too subjective thereby providing limited visibility of exposure to risk.
PROACTIS' experience of working within the legal sector to improve Spend Control initiatives with cutting edge technology makes us extremely well placed to help leaders and managers address the challenges of controlling costs and optimising efficiencies.
PROACTIS is experienced in helping law firms to address these Spend Control and eProcurement issues, and more. PROACTIS clients include:
- DLA Piper
- Clifford Chance
- Herbert Smith
- Hill Dickinson
- Barlow Robbins
- The Law Society