Costly Challenges of Using the Wrong Practice Management Software for Your Law Firm: Ensuring Your Tools Meet all of You Accounting Needs

Trust Accounting

Successful development of Integrated Accounting software that addresses the many distinctive needs of the legal profession is challenging. Software tools used by other industries fall short. The accounting aspects must meet all the basics, as well as address three additional areas that together are unique to the practice of law: client funds accounting, matter cost accounting and back office accounting.

Moreover, law firm billing tools must use integrated accounting in order to defeat some very common issues that typically apply with the use of separate accounting systems and tools: Adaptation, Data Entry Errors, Matter Costs Recovery, Inflated Revenue, Practice Area Income Tracking and a Financial Overview.

Multiple Accounting Requirements

It’s imperative that you be able to manage all facets of your accounting individually and from a central application.

Client Funds

As an attorney, you may frequently be required to handle funds that do not actually belong to you, in the manner of retainers, personal injury settlements, escrow amounts and the like. As you may not commingle these funds, this requires the establishment of trust accounts and very careful bookkeeping and tracking of these accounts.

Each state establishes their own record-keeping requirements, but there are strict and defined guidelines that must be adhered to. In essence, the following functions must be available with any accounting software you choose:

  1. The ability to track the balance in your bank’s trust account.
  2. The ability to track and break down the balances of each client’s account in the trust account.
  3. Ease of tracking transactions for each client from initial deposit through final disbursement, filterable by transaction type, client, date range and matter.
  4. The ability to invoice clients, and pay the invoices with the transfer of trust funds to an operating account.
  5. Comprehensive reporting.

Matter Costs and Management

This is another essential function of fully integrated billing software for lawyers. All the activity in your firm associated with a matter must be trackable – by client, by matter type, by the professional performing the service, and from a central location to provide an overall picture. It must differentiate between fees and expenses and easily identify any and all non-invoiced and unpaid balances.

Back Office Funds

This is perhaps the most “common” aspect of accounting for law firms. For the most part, it addresses billing for expenses that are common to many businesses, such as operational costs, utilities, internet service and payroll. However, even in this area, law firms must take extra care. In many situations, you may need to track reimbursements for indirect matter costs, and this requires separate accounting methods and distinctive tracking. Additionally, careful oversight in this area is necessary to helping determine your firm’s profitability.

An effective integrated accounting tool for law firms must incorporate all of these requirements in a comprehensive manner. It must also address the many challenges you face when trying to use more generalized software, beginning with Adaptation and Data Entry Errors, which will be discussed in the next blog in this series.


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