Guide: What is legal spend management?

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Guide: What is legal spend management? | Pleo Blog
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Keeping an eye on spending is important across your company. Legal spend is no exception – and that’s what legal spend management is all about.

Effective legal spend management is essential for controlling costs and getting the most value out of your legal services.

In this article, we’ll cover what legal spend management is and give you 5 best practices for effective legal spend management.

Key takeaways:

  • Legal spend management helps companies control legal costs, get the most out of their legal services and increase budget transparency and operational efficiency.
  • To achieve the benefits of legal spend management, you should set clear budgets, benchmark your spending, keep an eye on your invoices, create and enforce billing guidelines and communicate with your legal team.

What is legal spend management?

Legal spend management refers to the process of monitoring, controlling and optimising a company’s legal expenses – both in-house and outside resources.

The purpose of legal spend management is to boost financial efficiency while ensuring legal risks are effectively managed.

It’s all about managing costs associated with legal services – such as outside counsel fees, litigation costs and compliance-related expenses.

There are plenty of benefits to legal spend management, including:

  • Cost control: By giving you real-time visibility into your legal expenditures, legal spend management helps you identify and reduce unnecessary legal costs.

  • Value optimisation: Outside counsel should always pair high-quality legal services with cost efficiency. Legal spend management gives you the data you need to make sure your outside resources are delivering the business value you’re looking for.

  • Transparency: Legal spend management gives you clear insights into where and how legal budgets are being spent, allowing you to make informed decisions and avoid hidden or unexpected costs.

  • Increased efficiency: With legal spend management, you can streamline operations, automate repetitive tasks – e.g. invoice approval and spend reporting – and get the most out of both in-house and outside counsel resources.

Together, the benefits of legal spend management help ensure you can keep your costs under control and prioritise getting the most value out of your legal resources.

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5 best practices for effective legal spend management

Knowing about the benefits of legal spend management is one thing – achieving them is another. We’re here to help you do just that.

Here are five best practices for getting the most out of legal spend management:

1. Set clear budgets – and stick to them

Without a clear budget, legal expenses can quickly spiral out of control. Budgets help set expectations for both in-house teams and outside vendors. They also make it easier to predict your overall financial health, and they help ensure you won’t blow through your company resources.

Look at past legal spend to set realistic budgets, and get input from your legal and finance teams to align on budget goals.

2. Benchmark your spending

Benchmarking helps you understand whether your legal expenses are in line with industry standards. It can reveal if you’re overpaying for certain services or if your processes are less efficient compared to your competitors.

Look for benchmarking studies or reports specific to your industry. It’s also a good idea to leverage technology. Many legal spend management platforms provide built-in benchmarking tools that allow you to compare your spend to similar companies.

3. Keep an eye on your invoices

Legal invoices can be complex, and errors or overcharges are surprisingly common. If you aren’t reviewing invoices closely, you could be paying for services you didn’t agree to – or for inefficient work.

Here are some tips for keeping an eye on your invoices:

  • Automate invoice reviews: Use legal billing software that flags potential errors – e.g. duplicate charges or rates that don’t match your agreements.
  • Look for red flags: Keep an eye out for descriptions like ‘general research’ or ‘miscellaneous work’ – these can hide inefficiencies you shouldn’t always be paying for.
  • Verify compliance: Make sure invoices follow the agreed-upon billing guidelines (more on these later).
  • Request clarification: Spotted questionable charges? Don’t hesitate to ask your law firm to clarify what they’re for.

4. Create and enforce billing guidelines

Clear billing guidelines set the ground rules for how and what law firms can charge you. Without them, you might end up with inconsistent billing practices that lead to unnecessary costs.

Some tips for setting and enforcing billing guidelines include:

  • Define what’s billable: Specify which tasks are reimbursable, such as travel or clerical work, and which are not – e.g. internal communications within the law firm.
  • Standardise invoice formats: Ask for detailed, itemised invoices with clear descriptions for each task.
  • Communicate expectations: Share your guidelines with all external vendors – and make sure they’re aware that non-compliance will delay payment.

5. Communicate with your legal team

Your internal legal team plays an important role in managing spend. It’s much harder to control costs if they aren’t aligned with budget goals or don’t understand your financial priorities. Collaboration ensures everyone works towards the same goal.

Hold frequent meetings to review ongoing legal matters and their budgets. Educate your legal team on cost awareness and promote cost-effective practices, and make it easy for them to flag potential budget issues early.

Wrapping up

Effective legal spend management boosts your company’s financial efficiency while ensuring legal risks are properly managed.

By following the best practices above, you’ll have better control over your legal spend without compromising on quality or compliance.

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