A Law Firm Guide to LEDES Billing

The Legal Electronic Data Exchange Standard (shortened to LEDES, and sounds like it rhymes with deeds) is a globally-recognized legal billing and invoicing system. LEDES billing was created in 1995 to standardize electronic billing and the exchange of other information between businesses and law firms. It is required for many corporations to hire outside counsel, to understand how funds for legal representation are spent.

What makes LEDES special? The billing format configures data in a certain way for electronic exchange so that corporate clients (and their auditors) can easily review the data. The formatting can be daunting, particularly if you are manually creating it.

Before we get into the magic of Smokeball time tracking and legal practice management software and our LEDES integrations – we should explore how and why LEDES billing is necessary for many law firms.

What Is LEDES Billing?

LEDES billing is a billing format that allows electronic data exchange standard – sending information electronically. The intention with LEDES e-billing is to be consistent and easy to understand and also be understood by computers.

Clients – particularly large corporations spending millions of dollars on hourly billing by legal representation, want their bills in a format that they can dissect and analyze spending on representation and expenses. A LEDES invoice or billing file is a text-only invoice that organizes data in a standard order and format.

Many larger corporate clients and insurance defense firms require ebilling in the LEDES format, with invoicing submitted through billing and auditing sites. With LEDES billing, legal departments can “read” the invoice and several hundred electronic data interchanges (EDI) billing details. Task and activity codes categorize activities so it’s very easy to see where time (and money) is spent.

Brief History of LEDES Format

The LEDES (Legal Electronic Data Exchange Standard) Oversight Committee (LOC) is a not-for-profit organization of legal industry professionals who are responsible for creating and maintaining open standard formats for e-billing and other information exchanges between corporations and law firms. This organization was formed in 1995 as an informal group that was tasked with creating a framework for the exchange of billing information. Today, LEDES provides over 250 EDI (electronic data interchange) formats that make issuing a LEDES invoice in the proper LEDES billing format easier.

Core Principles of LEDES Format

The LEDES Oversight Committee’s work is guided by five basic principles: 

• Simplicity. Every LEDES billing format is designed to be as simple as possible so that no one has to work harder than necessary to use a LEDES file.
• Clarity. Every LEDES invoice is designed to be as unambiguous as possible. No need to play guessing games when you’re generating an invoice.
• Use past formats as a foundation. There’s no reinventing the wheel. The LEDES format tries to avoid shifting too much from past formats.
• Only request accessible information. A LEDES invoice will only request information that the law firm will have readily accessible.
• Focus on law firm and vendor needs. LEDES software is designed to be as law firm and vendor friendly as possible.

Using a standardized method for creating invoices, LEDES makes it easy for the legal industry to issue and track invoices. This is why it’s important that law firms only use legal billing software that supports LEDES files.

There are several LEDES billing formats that exist, however, Smokeball offers the most commonly used one, LEDES1998B.

Benefits of LEDES Billing for Law Firms

With LEDES and UTBMS (the Uniform Task Based Management System), billing codes allow lawyers to separate billable expenses and tasks, by selecting activity codes for tasks. There are several benefits to this: 

Streamline the Legal Billing Process

“Keeping it simple” is the first guideline of the LEDES Oversight Committee (LOC). Efficient coding systems allow law firms to prioritize simplicity. Timekeeper classification codes categorize who is working on a matter, from legal assistants and paralegals to associates and law firm partners. Pre-established codes make it easy to generate consistent invoices and exchange billing information. LEDES billing satisfies the needs of law firms and legal departments, as well as clients and their auditors to understand their legal spending.

Get Useful Data for Strategic Analysis

Law firms who use a LEDES billing file for their e-billing needs are in a better position to extract data for billing analysis. Invoices that use the LEDES format allow law firms to extract valuable invoice data to find out how money is flowing in the firm. This type of insight can help law firms get a better picture of how well (or how bad) they’re performing financially.

What Is a LEDES Billing File and How Does It Work?

A LEDES file is a text-only invoice file that displays invoice data in a specific order and format. A LEDES file makes it possible for all law firms to issue electronic legal bills in a standardized way, making billing easy for the legal industry and the clients they serve.

As some law firms make their first leap from paper invoices to e-billing some may use PDFs as a first step. But e-billing is more than just issuing a PDF copy of a paper bill. Using LEDES-compatible software such as Smokeball, you will have the ability to use a LEDES billing generator easily so that you can access the right kind of LEDES file for your invoicing needs.

When law firms use LEDES format billing, they access special codes that let them categorize legal services and expenses in a standardized and useful way. These special codes are called Uniform Task-Based Management System (UTBMS) codes and are sometimes referred to as LEDES codes. These task codes will unlock the power of data analysis because they allow both law firms and clients to easily rack and compare specific legal services and expenses and then connect those data points to specific outcomes.

It’s important to note that when law firms fail to use UTBMS or a LEDES billing process, it can become impossible to track data accurately – and can jeopardize relationships with corporate clients. Imagine using a few catch-all codes for every type of legal service you provided, it would become next to impossible to then figure out which legal services you provided most often and to whom. By using an established system that has been carefully refined over the past 20 years, you give yourself access to the infrastructure needed to collect and track financial data for the well-being of your law firm’s bottom line and meet the billing requirements of your clients.

Most Commonly Used LEDES Billing Formats

There are several LEDES billing processes and existing formats that are available:

• LEDES 1998
• LEDES 1998B
• LEDES 1998BI
• LEDES XML
• LEDES XML 2000
• LEDES XML 2.0
• LEDES XML 2.1
• LEDES XML 2.2

Smokeball offers the most commonly used format, LEDES1998B.

LEDES 1998B Format

The LEDES 1998 format is a pipe-delimited format. This format utilizes a plain text file that uses the “|” character to separate fields of data instead of commas. This is a widely-used format that is familiar and simple. Although newer XML formats have been adopted and are more popular for alternative fee arrangements (AFAs), the LEDES 1998B format remains the preferred standardized legal billing system for law firms billing corporations.

How Do You Create a LEDES Format Invoice for Legal Billing?

The LEDES format and LEDES billing codes can be a major headache if you’re having to create billing files manually. Fortunately, you don’t have to (and should not) spend hours navigating a text file in Notepad. Most law firms use third-party electronic billing software to create a LEDES billing format invoice and submit it. Although many legal industry software vendors generate LEDES format, not all provide the efficiencies that Smokeball does.

Boost Your Legal Billing with LEDES Features with Smokeball!

Legal billing codes and the LEDES invoice format do not have to be a painful or confusing exercise for you and your legal staff. Tools like Smokeball legal billing software streamline the process and allow you to quickly generate LEDES invoices and maximize effectiveness and efficiency. Smokeball is fully configured to automate and integrate your legal practice and how you bill for it:

• Automatic time tracking; 
• Integrations with Microsoft Word and Outlook; 
• Library of thousands of legal forms.

Software such as Smokeball legal case management software will support LEDES formats like LEDES1998B and ensure that your law firm is meeting the standards that the legal industry uses when issuing electronic invoices. From time and expense tracking to billing and online payments. See why Smokeball is so powerful to law firms and why lawyers say they wish they had found us sooner. Contact us to book a demo.