Morrison on Metrics: Tracking seasonal billing trends

As the seasons change, so too does the flow of incoming invoices.

The most variable metric law department managers track is outside counsel spending. This got me wondering whether there is much seasonality to the inflow of invoice amounts: Are there any patterns by month for how much gets billed to law departments?

A priori, one might suppose that the need for external legal services shows a reasonable consistency during the course of a year, and that invoices arriving for those services, albeit delayed, match that consistency.

Some perturbations do, however, seem likely. Many retailers see their revenue clump into the end-of-year holiday period. And, of course, there are climate-based businesses–think ski lodges and water-skis. It is also reported that some deals are aggressively pushed toward the end of a company’s fiscal year. Even so, the invoices of the law firms that work on those deals will not arrive until a month or so later.

It also seems likely that the demand for legal services subsides during the latter part of the summer when people are on vacation. For the same reason, demand ebbs toward the middle of December. Those times of either intense or diminished business activity mean that six to eight weeks later, invoice amounts either soar or slump. The inflow of outside counsel invoices always lags the actual fluctuations of demand for legal services by corporations.

The more international a company, meaning here the more it sells or services outside the United States, the more evenly you would expect the legal work to flow during a year. A slow holiday period in Europe cancels out a busy period in Brazil.

Another contributor to the tides of invoices is the corporation’s fiscal year–which way this affects invoice flow, however is not easy to generalize. Sometimes law departments urge their firms to get their bills in so that the department can pay while there’s still budget. Under different circumstances, departments ask firms to delay billing them because there is no budget money or they are trying to manage their budget (like publicly traded companies smooth earnings).

Aside from the bumps in bill flow outlined above, I suspect most businesses chug along with a fair degree of regularity during the year and legal invoices follow suit.

Turning to forces on the law firm side, firm management wants to make the most generous distributions to their partners as possible, and therefore may aggressively push billing in November and December while even more aggressively seek prompt payment.

Curiously, tiered discount arrangements may alter whatever was a normal invoicing flow. If a firm’s final bill in a year will trigger a higher discount level, especially a retroactive discount, the firm may–if it can–delay the bill until the next year.

When you try to put all these different forces together, and when you consider that some law firms are prompt in their billing practices while others are dilatory, it is most likely that the flow of the invoice amounts stays relatively stable throughout the year but for a bulge at year end. There is thus only mild seasonality in this key metric.

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