Avoid Billing Errors by Performing Audits

When was the last time you audited your vendor invoices? I’m about to tell you how I recently uncovered thousands of dollars in billing errors by 2 major law firm vendors. I’m also going to give you 4 specific situations during which you need to proceed cautiously. There are steps you can take to minimize the time you waste dealing with billing errors and chasing down the credits you deserve.

For many attorneys and other small business owners, cash flow is extremely important. However, the pressure of deadlines, preparing for trials, managing client requests, fielding new client inquiries, dealing with staff issues, and various other demands leaves little time for auditing invoices for contracts you’ve already negotiated. Nevertheless, neglecting this important activity can have a serious impact on your cash flow.

Earlier this month, I helped a small firm by reviewing a series of invoices.  I discovered FindLaw billing errors of over $8,200. Add to that amount the $8,700 the client would have been billed in the upcoming months because of the errant contract item.  Together, I actually uncovered what would have been close to a $17,000 loss for the law firm. It’s quite likely that the attorney would have never caught the billing errors.  The vendor would have continued to overbill the client and the mistake would have continued.

The challenge for solos, small firms and even larger firms is that extra time is the one thing no one seems to have. Consider the time you’ll spend actually trying to interpret the product descriptions listed, confirming that the prices match the contracted amounts and figuring out why the invoice may include charges from multiple time periods. I’m sure you’ll understand why firms just assume the bill is correct. Many of these billing errors can be overlooked because the discrepancy is diluted over a series of monthly invoices. They may not catch your attention because discrepancy doesn’t occur as an aberration on just a single invoice. But remember, even a slowly dripping pipe will eventually cause a flood.

4 Key Times to Review Your Invoices

When you work with large companies, like FindLaw and Martindale, the opportunity for billing errors can increase. I recommend you pay close attention to your invoices, particularly around these four occurrences:

1. During the first 2-3 months of any new contract. Your initial bill may be issued on a pro-rated basis. You’ll need to wait a month or two to make sure you’re able to see your billing for a full month. If you have questions, it’s always a good idea to contact your sales rep to have him/her answer them. Remember to ask questions until you’re confident you fully understand the issue(s).
2. Any time new products or services are added. This is especially true when you’re dealing with FindLaw and Martindale.  New products are actually added via stand-alone contracts, not simply as an addendum to the existing contract. The new contract term (e.g. 12 months, 24 months, etc.) will typically be different from the term of your primary services. This can cause issues if you ever need to cancel products/services. I’ll give you a tip for dealing with that situation in a minute.
3. When it’s time to renew a contract. Most vendors offer an incentive (usually a discount) to keep your business. For them, the view is “it’s always cheaper to retain a client, rather than trying to regain a client.” Remember, any items you’ve added have their own contract terms, even though they show up on the same invoice. The contract you’re about to renew may not contain all of the specific items you have with that vendor.  Make sure you confirm the specific items receiving the renewal discount. To avoid billing errors, you may want to begin working to align the terms. I advise clients to let an individual contract float on a month-to-month basis so it can be renewed at the same time as the addendum-based services. Over time, more of your component services can then exist on a single contract, or at least with a common expiration date. That’s easier to accomplish if the terms are only off by a couple months. If the gap is wider, you need to calculate the cost of the float to determine if it’s worth the convenience. It’s helpful to understand the specific calculation the vendor will use to determine the discount.  I can actually show you 2 different ways to calculate a percentage discount resulting in 2 different amounts.   Make sure you and the vendor are on the same page, before you sign your renewal agreement.
4. Whenever you change vendors. If you’re considering changing vendors, you should spend time understanding the various components of your current contact(s), including the remaining term of any individual contracts. If you have a website contract, but later added some additional items (see #2 above), you may still be liable for the additional items, even though the vendor is no longer handling your website. Watch over the next few months to see if any trailing invoices are billed.  It can throw off your budgeting.  It’s always better to know about this probability in advance.

Unfortunately for clients of large companies, sales reps face increasing pressure to focus on pitching and selling new products as their quotas increase and competition grows. There’s little time left to continue to work on the relationship with their clients. Sure, there are account managers (available via 1-800 numbers) who are tasked with handing change-requests and other issues, but monitoring your invoices isn’t something they typically do. An entirely different department processes your billing. This results in you, the client, having to identify these billing errors.

Internal billing audits by the vendor are rarely, pro-actively performed. If you don’t catch it early, the problem grows and you may have to spend precious hours or days trying to resolve the issue which can often involve multiple invoices, several phone calls to your sales rep, emails to account managers, calls to the credit department, tracking applied credits and of course, the loss of time you should have been spending generating revenue.

Fortunately for the attorney mentioned above, the vendor responded favorably to the questions I asked the attorney to present. I also provided the attorney with a spreadsheet including the specific information the vendor would need (invoice numbers, dates, product subscription numbers, amounts, etc.). A credit is being issued and the line item in question should be removed. The issue remains that if we hadn’t reviewed the invoicing, the billing errors would have continued for quite some time.

It’s easy to assume that these types of errors don’t occur that often. However, I audited the invoices and contracts for different law firm in Lexington, KY earlier this year.  I determined that they had 3 vendors billing them for website services. My audit uncovered a Martindale $8,000+ billing error. I provided the firm with an outline of the specific issues and recommended a communication plan to help them secure credits from the vendors.

In this particular case, the partner was concerned about the billing issue affecting their legal research. When a firm uses a vendor for both legal marketing as well as research, it may have to tread more lightly during the dispute resolution. If a firm decides to stop paying it’s website charges as a tactic to get the vendor’s attention, the vendor may decide to punch back by denying access to much needed online legal research tools.

Consider an Audit by a Consultant

Many firms can’t afford a full-time office manager or marketing team.  I launched my consulting firm to offer my services as an “outsource-resource.”  Over the past 20+ years, I’ve executed hundreds of sales contracts. I’ve sold products and services as a sales representative and director of sales. I’ve worked directly for Fortune 500 manufacturers and downstream distributors. I’ve contracted products and services on behalf of law firms in my former position as the director of a law firm.  I’ve negotiated contracts with vendors from multiple industries.

The value I bring to a small law firm, healthcare provider and others is that I can help you to manage your vendor relationships and contracts to ensure you receive the best value for the money you’re spending.

When was the last time you audited your vendor invoices, analyzed your cell phone plans, put your office supplies out for bid, or renegotiated your copier contracts?  

There are many areas you can monitor to achieve cost savings and increase your profitability.  Remember, at the end of the year, it’s not only about your top-line revenue.  It’s about the money you actually keep as net margin.

If you’d like to discuss your current vendor contracts, I’d be happy to meet with you. I work on an hourly basis and “percentage of realized savings” basis. Both of the above-mentioned law firms were surprised at what I discovered.  As a result, they were able to recover thousands of dollars from FindLaw and Martindale billing errors. An audit can help you to save money, manage your invoicing more effectively and determine if specific products and services are performing as intended.  To schedule a meeting, call me at (502) 208-9639.