There’s Gold in Them Bills

Eighty percent of the 15 billion B2B invoices processed each year by U.S. companies are handled the old-fashioned way: on paper. Companies employ legions of workers who laboriously sort, distribute, audit, track, and pay these bills largely by hand, a process that saps productivity and, more important, squanders the wealth of strategic information hidden in the bills. That’s beginning to change. Pioneering companies like Liberty Mutual, General Electric, Procter & Gamble, Wal-Mart, Dow Chemical, and Sprint increasingly require their vendors to abandon paper and submit invoices electronically. Making the switch from processing paper invoices to processing electronic ones is complex and costly. But the payoff, we’ve found, can be huge. Four years ago, Liberty Mutual Group, a $16 billion property and casualty insurer, became one of the first companies to experiment with electronic invoices, setting up a pilot program with a handful of law firms to submit their bills through a secured site. These firms, for the most part, handle claims litigation for Liberty—defending our policyholders named in lawsuits. Today, we process 389,000 electronic legal-services invoices a year—70% of the total invoices we receive annually. As expected, the transition hasn’t been cheap—the company has invested more than $900,000 so far. But we estimate that our electronic invoice program saves Liberty $750,000 a year in direct costs by streamlining the intake, distribution, payment, storage, and retrieval of invoices. We move e-invoices from intake to payment with half the staff it takes to process paper invoices, and we’ve slashed costs resulting from data entry, data entry errors, late payments, and overpayment. We also save more than $20,000 per year on postage, photocopying, archiving, and retrieval costs. A Case in Point As important to us as these cost savings are, the real value of electronic invoices lies in the detailed information they reveal about each firm’s billing practices and trends. Legal invoices are organized by litigation phase or task—such as taking a deposition or reporting a witness statement—and they dice work time into tiny increments of six minutes or less. A single invoice covering one month of complex litigation can run well over 1,000 lines. By building and mining a database of law-firm billing practices, Liberty can now generate a highly granular report card about law firm activities and performance. We can instantaneously see how firms deploy and bill for partners, paralegals, and other staff; how they compare with one another on rates, hours, and case outcomes; and whether, how, and how often they send duplicate invoices or charge for unapproved services. We can instantly review all of the time billed for a particular attorney across many cases to reconstruct the total time billed to Liberty during a single day. More than once, we’ve discovered attorneys billing more than 24 hours in a day. We’re also able to easily expose prohibited formula billing patterns (where, for instance, we’re billed a set amount for a service rather than being billed for actual time spent). In two cases where data mining turned up apparent formula billing, we audited the actual case files at the law firm offices and found more than $28,000 of suspected overcharges. We are now building a large database of law firms’ billing on different types of cases. Ultimately, this database will allow us to evaluate a firm’s billing activity at various points in a case and compare it with the norm among all firms for similar cases. With this new intelligence, it should be a straightforward matter to rate each firm’s cost-effectiveness in handling specific types of cases—and to match firms with cases accordingly. The decision to accept—and expect—electronic invoices must be driven by the promise of cost savings. But any company considering electronic invoicing should ask what strategic information it could reveal. For many companies, the gold will be in the data mine.

There’s Gold in Them Bills

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