Costly Challenges of Using the Wrong Practice Management Software for Your Law Firm: Inaccurate Expense Tracking is Costly and Misleading

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.

Inaccurate Expense Tracking

The previous blog in this series, Errors and Time Consuming Adaptation Efforts, explored the prevalence of data entry and accounting errors that results when you try to force inadequate accounting tools to perform essential functions across multiple platforms. But a failure to use integrated accounting for your law practice can easily lead to more than extra wok and inaccurate accounting entries. When you use accounting software that isn’t tailored for use by law firms, you may be directly impacting your firm’s revenue.

Matter Costs Recovery Issues

Recouping payment for matter expenses is essential to any law practice. But without a centralized “tracking system”, this effort may be hindered and often overlooked. The most effective tool will tie spending that’s tracked in your accounting system to your billing system. Therefore, for example, when you generate a check to cover administrative costs in a matter, this amount is posted to your client’s matter, and at the same time it is automatically coded as a reimbursable client cost, which is also added to the accounting system. No data entry errors. No duplication of effort, and no lost revenue.

Moreover, by providing your clients with timely, accurate, substantiated and detailed expense charges, you minimize the chances of chargebacks. And in addition to tracking all matter costs and ensuring that they are accurately billed and efficiently recovered, legal integrated accounting tools can also help you budget more efficiently.

Inflated Revenue

Another problem with inaccurate matter costs tracking and recovery is inflated firm revenue amounts. Without the right tools, when a check comes in from a client, your bookkeeper has no way of knowing whether the entire amount is fee revenue or if all or a portion is reimbursable expenses. By applying the entire amount as revenue, your resulting Profit and Loss Statement will reflect exaggerated, inaccurate revenue numbers.

With integrated accounting, the system associates the client with the matter and automatically identifies any matter costs that have already been invoiced. It will therefore apply the check as detailed on the invoice, for fees and for expenses. If the check isn’t sufficient to cover the entire amount, it pays the reimbursable costs first and applies any available surplus to fee revenue. This helps you stay on top of your matter costs recovery efforts and ensures that everything is accurately and comprehensively tracked.

The next and final blog of this series, Ineffective Income Tracking Obscures the Big Picture, will cover the ability to track individual practice area income and the importance of a system that reflects an accurate financial overview.


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