When it comes to keeping accurate records of your law firm’s accounts, it’s essential to make sure you’re using tools for the job that give you a clear picture of your firm’s performance and meet your legal, regulatory, and ethical requirements.
Many firms, however, use outdated accounting methods or an assortment of industry-agnostic tools that don’t account for the unique requirements of accounting for law firms.
A legal-specific accounting solution can help keep you in the know about your firm’s finances and help to ensure your firm remains compliant with legal regulations.
With that in mind, we’re taking it back to basics in this article to highlight the differences between legal accounting software and general accounting software to illustrate why it’s critical that attorneys use the tools created with law firms in mind.
Four features that differentiate legal accounting from general accounting
While legal accounting and general accounting software may share some similarities, their features can vastly differ. Let’s look at the major differences between the two.
1. Trust Accounting
Trust accounting is a significant responsibility for attorneys—your clients depend on you to be good stewards of funds entrusted to you. It’s also rife with complexities and requires attorneys to comply with the nuanced rules and responsibilities of trust accounting regulations.
Using industry-agnostic accounting software for trust accounting can be risky because these programs lack the necessary features for managing trust accounts. If you’re using generic software for trust accounting, you could end up accidentally making errors with the regulations for trust accounting, such as commingling client funds with operational ones or failing to perform three-way reconciliations.
In turn, this could jeopardize client trust (and the health and reputation of your firm).
On the other hand, an industry-specific accounting solution ensures you’re employing tools that are specifically designed with trust accounting rules in mind.
The right trust accounting solution should:
- Generate a comprehensive set of trust recordkeeping reports
- Manage individual client ledgers
- Help to prevent frequent trust accounting mistakes like commingling or ledger overdrafts
- Offer online payments for individual or bulk invoices using trust funds
- Import electronic bank statements and auto-reconcile your books
- Generate three-way reconciliation reports
- Assist with printing disbursement checks
- Track and disburse third-party lien claims
2. Time tracking
When it comes to running a successful law firm, accurately tracking your time is a critical component of maximizing your productivity and profitability.
The right time-tracking software reduces the time your team spends logging their hours—and the risk of errors as busy legal professionals try to recreate how many hours they spent on tasks.
While it’s possible to use time-tracking tools built into general accounting software or generic time-tracking software, if it doesn’t integrate with your practice management software, you’ll run into challenges, from information silos that make it difficult to collaborate to manual error.
As a result, you may end up frustrated and bottlenecked.
A better option is to look for a comprehensive practice management solution that offers both time-tracking and accounting features. When you take this route, you won’t have to worry about spending hours inputting tracked time into your accounting software. Your data will be added automatically, making it easier for your firm to accurately bill clients based on time spent working on their matters.
3. Billing and invoicing
Getting paid may sound like the easiest part of your job, but billing and invoicing can involve a lot of steps. When done right, though, it can build trust with clients, decrease the time spent on collections, and support a healthy cash flow.
But to achieve that, you have to use the right tools.
Generic billing and invoicing software might be able to get the job done, but using an industry-agnostic service poses a few challenges for law firms. Because a generic option isn’t tailored to meet the needs of law firms, it likely won’t have essential features like:
- Integrations with other legal software
- Trust accounting management,
- Uniform Task-Based Management System (UTBMS) compliance
- Automatic billing based on time entries
A legal-specific accounting solution with billing and invoicing features can give you peace of mind by providing you with the features listed above, helping to keep your firm compliant with legal and ethical regulations, and reducing the risk of error that comes with using industry-agnostic software.
Other features that your billing and invoicing software should include are:
- Separate trust and operating accounts that can be managed from a single platform
- Streamlined billing
- Recurring and scheduled payments
- Frictionless invoicing processes
- Next day funding
Being able to generate quality reports is key to understanding and maintaining your firm’s financial health, and to do that, you need a reporting solution that meets the needs of your law firm.
Many firms use non-industry-specific accounting software for their accounting needs, but there are some drawbacks to going this route. In order to get a clear picture of your firm’s profitability, you might be required to purchase multiple tools and spend hours linking them together, which can eat into productivity and billable time.
Using legal-specific accounting software can give you valuable insights into your finances by generating advanced reports that come with all the data you need from a convenient dashboard. A great software solution will offer billing and accounting reports as well as trust compliance reports so that your firm has the information it needs to succeed and stay compliant.
Your accounting software should provide you with a variety of reports including (but not limited to):
- Time and billing
- Financial productivity
- Matter accounting
- Firm accounting
- Matter activities
Ready to get the most out of your accounting software?
When deciding on accounting software for your law firm, it’s paramount to select a solution that meets the specific demands of the legal industry. CosmoLex’s all-in-one software solution was designed with legal professionals in mind.
From trust accounting that keeps your client’s funds safe and your firm compliant to time-tracking and invoicing features that increase efficiency and get you paid faster, CosmoLex has all of the solutions your firm needs to take its accounting processes to the next level.
The Five Obstacles of Legal Accounting
Download this eBook to learn the five most common legal accounting challenges and how to avoid making costly mistakes. Topics covered in this resource, include:
- Client Trust Accounting
- Proper Accounting of Case Costs
- Differentiating Income and Revenue
- Data Entry Errors Between Billing and Accounting Systems
- Understanding Where the Money Came From