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What is the difference between a hard cost and a soft cost for a law firm?

A hard cost, also known as a direct cost, is one that is paid directly to a vendor on behalf of a client for services provided in association with a specific client matter. [1] Hard costs typically include court reporter fees, filing fees, mediation fees, hearing transcript fees, etc. Good law firm practice management, through the use of a legal industry-specific accounting and billing program, ensures that these costs timely appear on a client invoice and that the firm’s books reflect the repayment of the cost when it occurs. [2]

Legal Client Hard Cost in CosmoLex

An example of recording a Hard Cost in CosmoLex practice management software.

Soft costs, also known as indirect costs, are general overhead expenses that can be easily attributed to a specific client matter but are not paid directly to the vendor on behalf of the client. [1] Soft costs typically include telephone, internet, legal research materials, copy costs, etc. Some law firms bill clients for these soft costs if the cost can be attributed easily to a specific client. For example, many copy machines or telephone systems allow a law firm to assign each client matter a number and then track the number of copies or the duration of all calls made under that number. Industry-specific accounting and billing programs allow firms to then include these soft costs on the client invoice and recoup them from the client. [2]


References

1. Tracking Direct & Indirect Costs

2. [Video] Law Firm Survival Skills: Business Accounting Basics