Photo: Andrey_Popov/Shutterstock.comOutstanding invoices may be pilling up at an organization near you. Amid COVID-19 shutdowns and subsequent economic pain, client payment disruptions are becoming more prevalent across the economy. And with many law firms tightening their belts, those servicing the legal industry are likely receiving their fair share of requests for discounts or extended payment terms.
Just how much this is happening in the legal tech industry, however, isn’t entirely clear. But despite certain things in its favor, the industry is susceptible to such disruption, and there are signs that it is, for now, enough of a potential problem to motivate legal tech companies to take proactive measures.
“I’ve certainly heard of instances where several clients and providers have requested extensions for payments or they’ve requested more time; certainly, I think some have looked for discounts,” said Doug Austin, e-discovery industry expert and author of the eDiscovery Today blog.
Others have had similar experiences, though they note such problems are uncommon. “We have talked to a handful of firms that are in very dire straits,” said Casetext CEO Jake Heller. He added, “It has happened, [but] it’s the exception, not the rule, and the extreme exception.”
Colin Earl, CEO of Agiloft, also said his company has seen “some folks asking for extended payment terms—not a high portion, maybe 5 to 10%.” He added that, in his view, the legal technology industry is experiencing these problems “a little bit less than average” when compared to other industries.
Over in the e-discovery market, e-discovery software provider Casepoint has likewise dealt with a few payment issues. “We had one or two clients say, ‘Hey, we have this thing going on, and we don’t know when we might deal with that [outstanding invoice],’” said Casepoint CEO Haresh Bhungalia.
Still Casepoint may only be experiencing limited disruption because of its efforts to get ahead of problems early on. “As soon as [COVID-19 shutdowns] started to kind of take shape, we kind of got very aggressive in terms of reaching out to our clients to make sure we were collecting on outstanding payments that were due to us,” Bhungalia said. “I would say in the last 30 to 45 days, we’ve collected more receivables than we have any period prior to that.”
Of course, legal tech companies will likely be flexible when trying to address any client payment problems that do occur. After all, no one wants to lose long-term customers.
Casetext, for instance, is “working with clients who have cash-flow issues on a one-on-one basis to fashion something that makes sense for them,” Heller said. He added the company also launched a program that gives small firms free access to its research platform, noting that “a quarter of the subscribers on our site are using it for free and got access through this COVID access program.”
Agiloft, meanwhile, is allowing clients that are having payment issues to “split payments over between the time it is normally due and six months down the line—they pay half now and pay half later,” Earl said.
Safe for Now?
To be sure, there are a few reasons why the legal tech industry may not be experiencing as high a level of client payment disruption as other sectors. For one, many legal tech platforms can be a critical part of law firms’ or legal departments’ revenue-generating business. “I think that clients understand for them to continue with their e-discovery activities and continue to have access to their environment, you have to pay the bills essentially,” Bhungalia said.
On the legal research side, Casetext’s Heller noted that “there is never going to be a time when [lawyers] don’t need to do some research,” adding that in “vast majority of cases … we’ve been kept as provider, especially to the larger law firms.”
The sentiment is similar for those in contract lifecycle technology space. “It’s absolutely essential; contracts are what allow you to get paid,” Agiloft’s Earl said.
In addition to being critical services, many legal tech companies also charge annual subscriptions, meaning many of their clients may have already paid up before COVID-19 shutdowns spread.
Still, these characteristics alone aren’t enough to fully insulate the market from payment disruption.
After all, while certain products are essential for legal business, there might be less business to go around, at least for the time being. “One of the challenges from e-discovery and litigation is that the case docket has slowed … I think that is one of the things that has made the e-discovery industry a little more vulnerable,” Austin said.
And what’s more, even if a company isn’t directly impacted by the economic downturn, there is no assurance it won’t be exposed indirectly by virtue of the deeply interconnected legal services market.
“When you think about litigation and e-discovery providers, billing arrangements can sometimes be four or five organizations deep,” Austin said. “You might have a corporate end client who retains a law firm to support them in litigation, which in turn outsources it to a litigation service provider (LSP) for certain services, and that LSP uses one of more software platforms to provide those services … which is really not that uncommon. And if any one of those companies start to struggle, it will impact the other in the chain from a payment standpoint; it’s literally, no pun intended, a chain reaction.”
In addition, though annual subscriptions protect against certain economic troubles, they’re no sure bet. The length of subscriptions for legal tech products, and the date on which they renew, inevitably vary company to company. Casetext, for instance, offers large firms “annual or multi-annual subscriptions,” Heller noted. “But with the smaller law firms, we have the option of both subscribing annually or monthly.”
Legal tech’s potential vulnerabilities to client payment disruption have led some to caution that the industry may not be experiencing more problems because the full repercussions of the current economic recession haven’t yet materialized.
“If the clients don’t pay, the law firms aren’t going to have the revenue to pay whatever bills they have from the legal technology side. And I have not seen that happen just yet, but I cannot imagine that it’s not coming in the next month or two,” said legal consultant Brett Burney.
Still, it’s not inevitable that such a dire situation will come to pass—it all depends on how the current economy, and COVID-19 outbreak, fares in the weeks and months ahead. “I think everybody is still in a wait-and-see pattern, a holding pattern if you will,” Burney said. “We want to know if business are getting back up.”
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