Legal Spend Reporting: The Practical Guide

Introduction

Legal spend reporting is both an obligation and an opportunity.

In-house legal teams, like any business unit, have a responsibility to accurately record and transparently report their expenses. This diligence is dictated not only by best practices but often by regulatory requirements as well.

The more dynamic side of reporting involves using data to inform strategy.

“Where do we need to improve our forecasting?”

“Which fee model makes the most sense for this upcoming matter?”

“Who has earned a place in next year’s panel?”

Data analysis can help you resolve many seemingly subjective questions with objective answers. And the resulting actions can improve team performance, vendor relationships, and the overall perception of the legal function within your business.

If that all sounds a little too optimistic to you, though, then you’re certainly not alone. The story of legal spend reporting in most organizations is still defined by adjectives like:

• Inefficient. Reports take too much time and/or too many people to build.
• Incomplete. Reports show only limited portions of the full perspective.
• Inaccessible. Reports aren’t available to the right people at the right time.
• Untrusted. Stakeholders don’t believe the data and/or conclusions are valid.
• Untapped. Insights within the reports don’t influence business decisions.

The goal of this guide is to help you shift the narrative from obligation to opportunity and turn legal spend reporting into your latest strategic advantage. And that transformation can only take place after you understand the foundational pillars all effective reporting rests upon.

The Three Pillars of Effective Legal Spend Reporting

(1) Complete Perspective

Valid conclusions require accurate data. So any progress you hope to make must begin by establishing a full and faithful account of legal spend.

The first dimension to consider is breadth. The end goal here is to capture every legal invoice, from every vendor, for every business unit. Analyzing only LEDES invoices or only the activity of your largest vendors, for example, would not provide an accurate representation of your overall spending strategy.

The second dimension to consider is depth. If you’re only noting the total at the bottom of each bill, then you’re ignoring a wealth of potential insights. Narrative descriptions hold the overwhelming majority of context contained on each invoice.

As you might expect, the technology you use to track legal spend determines much of your success. Smarter tools will mean faster progress and fewer headaches.

Traditional e-billing software, for instance, addresses the breadth issue by centralizing invoice submission. Instead of searching through dozens of individual inboxes, e-billing administrators can instantly see the full story in a single digital environment. But that promise only holds true if your software provider actually supports all of your invoice formats.

Depth has proven to be an even more difficult issue to solve. Task-based billing codes (ex. UTBMS) have helped introduce an additional layer of context to invoices, but they haven’t been a consistent source of truth. UTMBS, for example, only applies to LEDES format invoices and doesn’t cover all legal practice areas.

There’s also an inherent risk in vendors classifying their own work. Some may mistakenly select an incorrect code or forget to assign one altogether. Or they may fundamentally disagree on which services merit certain labels.

The only way to capture the full context of legal services, then, would be to have an expert within the in-house legal team read and categorize every line item description. But most organizations have understandably decided to allocate their energy elsewhere. (Even if they were eager to take on the challenge, no human reviewer could hope to maintain perfect accuracy across potentially millions of line items each year.)

That’s why artificial intelligence (AI) has become such a compelling topic among in-house legal teams. They’re recognizing machine learning as the only realistic way to investigate the deeper meaning behind every single legal service billed to their departments. And in the process, they’re recognizing the difference between software built for paying bills and solutions built for managing legal spend.

(2) Efficient Analysis

The spreadsheet has historically been the primary arena for legal spend analysis. A billing administrator would collect vendor invoices from colleagues across the legal department and manually record the associated expenses in the appropriate cells. A few tabs, filters, and formulas would then be added to help categorize spend and track budget progress.

Completing this exercise within the first few days of the month would be a major victory for most administrators. More frequently, they would suffer considerable delays while waiting for corrections to be submitted by vendors and invoices to be forwarded by colleagues. It’s no wonder, then, that few had the time to conduct complex analyses or the ability to deliver immediate insights.

The emergence of e-billing software marked a critical turning point. As discussed earlier, a centralized submission portal exponentially reduces the administrative burden around invoice collection. The legal spend ledger effectively builds itself. But even with a newfound surplus of space on the calendar, administrators are still struggling to interpret the data in a timely manner.

The trouble is very few traditional e-billing tools offer robust analytics features. Their customers are rarely empowered to run reports themselves — and the data they do receive usually lacks the desired level of detail.

AI-powered legal spend management software starts analyses on stronger footing by translating the unstructured into the structured. As a machine learning engine reads and classifies each line of narrative description, it creates a quantified view of legal services that goes far beyond surface-level subtotals.

That, in turn, enables you to draw insights from a deeper pool. And since the software automatically refreshes reports whenever new data is received, you can effortlessly maintain real-time awareness.

The combined result is a powerful new solution for simultaneously increasing your analytical powers and reducing your administrative requirements.

(3) Impactful Presentation

Expanding your perspective and refining your analysis will put you in a strong position to deliver effective legal spend reports. Unless you give equal consideration to how you package the data, however, those potential insights may never influence practical strategies.

Your first responsibility is to present the right reports to the right people. We’ll map specific reports to specific stakeholders later in this guide, but here are some overarching themes to remember as you develop your reporting plans:

Next, you need to consider timing. More frequent doesn’t necessarily mean more valuable. A quick conversation with your stakeholders should help confirm whether a monthly, quarterly, or on-demand cadence makes the most sense. (Note: The suggested frequency is included for each example report listed in the following sections.)

The final consideration, of course, is the content itself. Even the right report sent to the right person at the right time won’t be effective if it can’t be understood. So as you weigh the pros and cons of various design elements, always keep the following criteria in mind:

• Will viewers quickly recognize what is being measured?
• Will viewers easily identify the most important information?
• Will viewers accurately interpret the strategic implication(s)?

As long as you can answer those questions with a confident “yes,” the specific tools you use are less important. Certain software may make report customization feel easier or report production go faster, but layering sleek technology on top of poor fundamentals won’t deliver any extra value.

Legal Spend Reports for Financial Controls

Spend By Month

Primary Audience
Legal Leadership, Accounting, FP&A

Suggested Frequency
Monthly

Strategic Impact
This foundational report answers a question that will go on to influence dozens of other financial decisions: “How much did we actually spend last month?” At first, it may seem too basic to even acknowledge in this guide. But confirming a monthly spend total has historically been no easy task for in-house legal teams.

For those lacking centralized legal billing software, two imperfect options typically await. They can reference their finance team’s accounts payable (AP) system and try to reconstruct the story via purchase orders and invoice codes. Or, they can manually gather and record invoices via the spreadsheet-based process described earlier.

Neither option could be called efficient — and both are prone to error. As a result, the ability to automatically create an accurate ledger remains one of the most compelling reasons companies purchase specialized spend management software for their legal teams.

Spend By Matter

Primary Audience
Legal Leadership, Legal Operations, In-House Lawyers

Suggested Frequency
Monthly

Strategic Impact
This report highlights your financial priorities at a project level. For most teams, maintaining a snapshot of the most-expensive tier will be more useful than monitoring an exhaustive list of matters. (For the average Brightflag customer, 10% of matters account for 80% of spend.)

Legal teams relying on an AP system to compile this report will have a difficult time considering standard corporate finance tools don’t structure expenses in terms of matters. But if you can construct this deceptively simple summary, there’s a potentially powerful advantage hidden inside.

Consistently setting budgets and tracking spend will eventually generate a data-backed perspective of what matters should cost. That not only bodes well for the accuracy of your forecasts, it also gives you leverage to push back against pricing proposals that exceed your observed norms.

Accruals Overview

Primary Audience
Legal Leadership, Accounting, FP&A

Suggested Frequency
Monthly

Strategic Impact
Retrospective reviews alone won’t tell the full story of your finances. An accruals report complements the prior two by offering a preview of the impending costs associated with work that’s already complete or in-progress.

With accruals-based accounting now the norm among large enterprises, corporate finance leaders have come to expect this report from their legal departments. But this obligatory exercise also presents strategic opportunities. Oftentimes the data sparks conversations that lead to proactive course corrections.

Two limiting factors for this report, though, are how quickly and how completely your vendors supply the necessary data. Since most law firms operate on a cash-based accounting method, efficient accruals reporting is rarely one of their natural skills. You may even discover that some of the data you need has never been tracked to date. But if your solution amounts to nagging them with reminders to fill in a spreadsheet on the last day of each month, you can’t expect consistent results.

That’s why more legal teams are prioritizing spend management tools that ensure a friction-free accruals process for both vendor and client. Making it easy to identify and submit the necessary data is in everyone’s best interest.

Accruals vs. Actual

Primary Audience
Legal Leadership, Accounting, FP&A

Suggested Frequency
Monthly

Strategic Impact
Facilitating on-time delivery of accruals data is only valuable if the financial projections are accurate. This report rates that quality by combining data from the previous three reports.

Consider a question you’ll likely be asking in October: “Did the subtotal captured in the September Accruals Overview (finalized September 1st) differ from the cost confirmed in the September Spend Report (finalized October 1st)?”

If the gap between the two figures is minimal, when viewed in the Accruals vs. Actual report, you can trust that you’ve developed an accurate accruals reporting process. But if the gap is significant — particularly if Actual exceeds Accruals, you’ll want to investigate further.

Analyzing the spend at a more granular level, such as Spend By Matter or Spend By Vendor, should help you identify the root cause(s) of your financial surprise. And once that source has been identified, you’ll want to gather feedback from all involved to better understand why the accruals estimates were off-base and how similar errors can be avoided in the future.

Finally, it’s important to note that increasing financial predictability can ultimately be as (or more) valuable to your business as reducing overall spend. So be sure that you’re building a dynamic where vendors are more likely to provide realistic projections than optimistic estimates.

Forecast vs. Budget

Primary Audience
Legal Leadership, Accounting, FP&A

Suggested Frequency
On-demand

Strategic Impact
A budget informs strategy by confirming the maximum amount you aim to spend. It also sets up a simple test of financial management skills: Will you land under or over? Effective reporting can help you confidently predict the answer well in advance — leaving you with enough time to shape a more desirable answer if needed.

Spend reports confirm what has been subtracted from your budget reserve. Accruals reports estimate what will soon be subtracted from your budget reserve. By combining these data sources, you can generate a basic forecast to predict if and when you will run out of reserve and reach your budget limit.

We discussed earlier how the right technology can dramatically increase the efficiency of the underlying analyses. Trying to sew together all the different strands of data sitting in AP databases and Excel spreadsheets is tedious at best and impossible at worst. Processing all your spend and accruals on a platform specifically designed for legal services, on the other hand, can transform timely reporting from a lucky result into an automated outcome.

What we haven’t discussed in its entirety, however, is how technology can actually increase the accuracy of each variable in the Forecast vs. Budget equation. This is where A.I. returns to play a powerful role.

Legal teams using an A.I.-powered spend management platform gain the advantage of a machine learning engine that bases its cost predictions on billions of data points. It not only factors in your historical spending patterns, it also references similar matters being managed by other legal teams using the software.

Suddenly, your forecasts are informed by a galaxy of real-life data that reveals how much work is likely coming over the horizon and what costs to realistically expect.

Legal Spend Reports for Operational Performance

Budget Adoption Rate

Primary Audience
Legal Leadership, Legal Operations, In-House Lawyers

Suggested Frequency
Monthly

Strategic Impact
Consistent budget-setting creates feedback loops that can simplify and strengthen many financial decisions. In fact, Brightflag research suggests that vendors provide twice as much descriptive context in their invoices when working on budgeted matters. So a high rate here is a great sign for the overall health of your legal spend management strategy.

The most productive way to frame this data will be to compare individual lawyers and/or practice areas. This small dose of peer pressure may be all you need to raise budget adoption rates across the department. If not, the report will underscore where more direct conversations and adjustments are required.

Billing Guideline Compliance Rate

Primary Audience
Legal Operations, In-House Lawyers

Suggested Frequency
Quarterly

Strategic Impact
Well-crafted legal billing guidelines are one of your best leverage points when taking control of outside counsel costs. They’re your opportunity to push back against standard billing terms and pay only for what you deem most valuable. Of course, that opportunity only translates to results if vendors actually honor your rules.

One of the biggest productivity advantages offered by legal spend management software is the ability to automate billing guideline enforcement during the invoice review process. This reduces the likelihood of unauthorized expenses slipping through and saves you hours of administrative work along the way. It also builds a data set that describes how clearly you communicate your guidelines and how strongly vendors align with your value perspective.

Low compliance rates ultimately correlate with review headaches, approval delays, and wasteful spending — so this is not a number to let lag for multiple quarters. Both internal teammates and outside counsel have a responsibility to build consensus on what constitutes valid billable services.

Average Invoice Approval Time

Primary Audience
Legal Operations, Accounting

Suggested Frequency
Quarterly

Strategic Impact
Invoice management is the largest administrative burden for many in-house legal teams. So any efficiency gains you make here will give your colleagues significantly more time to add value elsewhere. What’s more, developing a reputation for consistently fast approval and payment could even create leverage to negotiate discounted vendor rates.

The standard version of this report offers a direct answer to a simple question: How fast do invoices go from submitted to paid? But one other dimension to consider adding is invoice value. A scatterplot comparing the two variables will offer valuable feedback on whether the effort you’re committing to invoice review aligns with the amount of money at stake.

If you’re having trouble driving invoice approval time down, ask yourself the following questions:

• How efficient is our invoice submission and collection process?
• How efficient is our invoice review process?
• How consistently do invoices comply with our billing guidelines?
• How strong is the alignment between our legal and finance teams?

The first three questions were addressed earlier in this guide, but the fourth introduces a new discussion. The most direct way to unite the departments is to integrate your legal spend management software with your company’s AP system. But there’s more to consider than technical requirements alone. Variable approval routes, tax management protocols, and payment status updates are just a few of the operational factors to agree on as well.

Legal Spend Reports for Strategic Resourcing

Spend By Vendor

Primary Audience
Legal Leadership, In-House Lawyers, FP&A

Suggested Frequency
Quarterly

Strategic Impact
Ideally, this report should spotlight the three to five vendors receiving the largest proportions of your budget. Cost is not the only measure of their value, of course, but it will certainly influence your overall perception of the relationship.

Are the vendors at the top of this report also the ones who:

• Understand your objectives best?
• Deliver the highest quality advice?
• Respond fastest to your inquiries?
• Provide the most accurate estimates?

If you find yourself dissatisfied with the correlation between cost and those performance factors, that will be a vital piece of feedback to consider when resourcing future matters and evaluating panel members.

There’s also a case for selectively sharing this report data with your most valued vendors. In addition to instilling a greater sense of trust in the relationship, it can lead to some immediate cost-saving opportunities. For example, letting a law firm know they sit near the top of your overall spend distribution may make them more amenable to a volume-based discount.

Blended Rates

Primary Audience
Legal Leadership, In-House Lawyers, FP&A

Suggested Frequency
On-demand

Strategic Impact
A blended rate is simply a calculation of the subtotal billed divided by the hours worked. This number represents the average hourly fee across all contributing timekeepers. Most importantly, it’s a powerful indicator of the cost-efficiency of a vendor’s work habits.

The most relevant application of this metric will be to compare and contrast multiple vendors who provide you with similar services. Let’s say you have three law firms supporting your intellectual property practice, for example, and your reporting reveals that one of those firms has a blended rate that’s 30% higher than the other two. How might you leverage that finding?

If the services provided by the most expensive firm are not materially different from the work done by the other two, you might decide to renegotiate your fee structure to match the blended rate of the less expensive firms. Alternatively, you might decide to allocate a higher portion (or all) of the relevant work to the other two vendors to reward their efficiency.

Regardless of what you ultimately decide is the correct course of action, this report will provide you with objective feedback on what specific legal services tend to cost. And that benchmarking capability is a theme we’ll return to several times in this section.

Timekeeper Breakdown

Primary Audience
Legal Leadership, In-House Lawyers, Accounting, FP&A

Suggested Frequency
On-demand

Strategic Impact
What would cause one vendor’s blended rate to be higher than another’s? The answer lies in who is performing the work and how long they are working — two variables captured in a simple timekeeper report.

This analysis breaks down the phase or matter subtotal into the individual contributions of the employees assigned by the vendor. The most insightful way to view this data is through a roles-based perspective: What percentage of the work was performed by partners, associates, and paralegals, respectively?

This more granular view of legal spend gives you the context to identify and suggest more cost-efficient resourcing habits. For example, maybe one law firm’s use of senior partners at a certain litigation phase seems excessive to you. Or, better yet, you’ve consulted the blended rates and timekeeper reports from other firms and can objectively confirm the excess.

Once again, data puts you in a position to gradually develop a clear perspective of what work should cost — and how fee models and vendor relations should adapt accordingly.

Budget Compliance Rate

Primary Audience
Legal Leadership, In-House Lawyers, Accounting, FP&A

Suggested Frequency
Monthly

Strategic Impact
Budgets bring value to the financial planning process by setting predictable upper limits. This report reveals how consistently vendor billing conforms to your initial cost expectations.

It’s important to acknowledge that 100% compliance may not be a record you can realistically maintain over an extended period of time. But seeing as the value of budget-setting decreases the further you get from that percentage, a consistently low score on this metric should prompt an urgent conversation.

Whether the vendor believes your cost expectations are unrealistically low, or you believe their resourcing habits are less than efficient, any disconnect needs to be resolved quickly to get budget compliance trending in the correct direction.

As for the matters that do result in overruns each month, consider running them through some of the reports outlined elsewhere in this guide.

• What is the vendor’s track record on providing accurate accruals?
• Is their operating efficiency above or below average?
• Are you having predictability problems across all matters of this type?

You may already have the data to identify where deeper discussions are required.

Matter Comparison Report

Primary Audience
Legal Leadership, Legal Operations, In-House Lawyers

Suggested Frequency
On-demand

Strategic Impact
The prior reports listed in this section are primarily reactive. They clarify how your vendor relationships are trending and offer clues on how to improve cost-efficiency going forward. But what if you’re still at the very start of a legal matter and need to decide who to instruct?

Matter comparison reports enable you to proactively analyze projects of a certain type and form your future strategy with the benefit of hindsight.

• How long do such matters typically run?
• What is the range of blended rates among qualified vendors?
• Do we have enough volume to justify an alternative fee arrangement (AFA)?

It’s important to note that you’ll need to develop a critical mass of matters before comparisons can generate valid insights. It would be a mistake to draw definitive conclusions, for example, from three M&A matters you’ve managed nine years apart.

Closing Thoughts

Legal spend reporting may be an unavoidable business requirement, but how you choose to respond to the task is still up to you.

Does the end of each month have to feel like a stressful scramble? Or can you set up a few smart workflows that eliminate the majority of your headaches?

Will your team always have doubts about the data’s accuracy? Or could better tech ensure confidence automatically?

Are all legal spend reports doomed to gather dust? Or can you present insights so relevant and valuable that they change the direction of your department?

If you really are committed to building a more optimistic future, the people, processes, and technologies you need are already here.