Essential Tips for Law Firm Accounting Practices

law firm accounting

Adequate accounting procedures are significantly important for legal organizations to minimize risks, meet requirements, and increase revenues. Notably, lawyers who are in the legal profession are usually centered on clients, and this aspect makes it possible for legal accounting to be overlooked. This paper explains how poor handling of financial records can pose a threat to the success of your firm. Incorporate these recommendations to strengthen your accounting procedures.

Implement Robust Billing Procedures

Inadequate or unstructured billing processes cause cash flow problems that can severely affect firms. Make sure to agree on billing rates and practices at the beginning of any representation to avoid confusion and misunderstandings between the attorney and the client concerning various client matters. Avoid billing your clients too often, instead schedule billing frequency to be high, for instance, monthly or biweekly. Bill all hours spent on a project correctly through the use of software and records of time utilized. Before forwarding invoices, it is always advisable to cross-check the computations made to ensure no mistakes are made. The collection of accounts receivable should not be dragged in case of nonpayment to minimize the aging of accounts receivable.

Monitor Accounts Receivable Closely

Do not allow unpaid client invoices to build by exercising due diligence in accounts receivable. Check expenses weekly and contact clients in case of delayed payments. For clients with financial difficulty, they should be allowed to have payment plans so that they can pay their dues gradually. Wise up invoices after a proper collection campaign has been launched to remove uncollectible from the accounts. It is essential to follow proper credit procedures when admitting new clients to alleviate high bad debts.

Fiduciary Duties and Responsibilities of Managing Client Trust Accounts

Client trust accounts can be a problem for lawyers as they get into ethical trouble in case of their misuse. Any money that is received from clients for future use in disbursing fees and costs should be deposited into an IOLTA or other clients’ trust account. Consuming these fiduciary funds in the course of business is not allowed; they should not be mixed with the accounts of the firm. The amounts and source for any trust account monies should be carefully documented. Record and adjust trust account balances down to the last penny each month. Engage the services of any independent CPA to conduct surprise tests of the trust accounts at least once per year.

Track All Operational Expenses

Some of the negative impacts of poor operating costs control include: Poor operating cost control leads to cash flow problems because firms do not have adequate visibility of the costs that are accrued. Integrate coding within your accounting system to gather specifics of some of the general expenses such as wages, rent, IT expenses, stationeries, advertising, consulting fees, etc. Implement controls to review large expenses. To achieve this, it is suggested to review the expense reports every month to determine areas where the waste can be cut down and to indicate what measures need to be taken regarding expenses.

Institute Robust Internal Controls

Without proper internal financial controls, law firms risk making mistakes and being involved in fraudulent activities. Provide the physical and financial roles to several staff members as this provides checks and balances in the financial responsibilities. For instance, ensure that you allocate one person to be in charge of making bank deposits and another one for reconciling the monthly bank statements. Integrate review and approval mechanisms within important processes, especially for major purchases, which should be approved by partners. Ensure that the company conducts routine audits to check compliance with the various policies and procedures.

It is imperative to pay the vendors and remit the taxes ON TIME.

When the accounts payable are not dealt with appropriately, firms may fail to meet vendor invoice due dates. It negatively affects relationships with the vendors and tarnishes creditworthiness due to delayed payments. Agree with suppliers and subcontractors on payment terms that allow you to pay after the completion of a specific phase of work and immediately enter invoices into your accounting software when received from the suppliers/subcontractors. Recommend that all the monthly expenses be put on the calendar. Complete and submit payroll taxes, income taxes, and sale taxes on time to minimize penalties.

Review Financial Statements Regularly

One issue that partners usually ignore is the regular evaluation of the financial statements of a business especially when work is tight and then you find that some issues are way out of hand. Frequency: Identify all those reports which must be reviewed at least once a month like income statements, balance sheets, statements of retained earnings, cash flow statements, aging reports, etc. Compare your performance against historical data and budget levels to pinpoint inefficiencies.

CPA firm annually for reviewing or auditing year-end financial statements.

To ensure that law firm accounting is as effective as it can be it is a significant task that requires a lot of time. You may wish to engage the services of an experienced legal bookkeeper or law practice manager to assist with organizational day-to-day work. It allows lawyers to focus on legal matters while all the financial issues are managed by others, but funds remain strong. When implemented effectively, the principles of accounting guarantee the success of such firms in the long run.

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