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Client Costs & Managing Accounts Payable: Why Quickbooks Won’t Cut It

Quickbooks is a great accounting tool for any general business but if you work for a law firm, then it is missing many of the key factors you need! Recording client costs properly requires a legal-specific chart of accounts that many general business accounting programs do not include.

Generally, there are three types of Accounts Payable for law firms. One of the more complex and crucial types of accounts payable deals with client costs, often bills from vendors to be billed to the end client. It is complicated and the accounting will be heavily scrutinized. As an attorney or law firm, you are the fiduciary for your client, any missteps in dealing with their financials can result in ethics violations and other penalties that could include disbarment.

This specific type of accounts payable is for when your firm needs to manage multiple vendor bills that will need to be billed to the end client. That may sound simple but the legal systems surrounding it are not. Remember, if this is not done with a large amount of care and attention to detail, your firm could accidentally make some substantial legal and ethical violations. Unfortunately, many instances of general purpose business accounting software do not account for these legal specific requirements and needs. Take a look at the list below for some essential features that any good law firm should look for in their accounting program in order to properly tackle their client cost challenges.

Essential Features For Law Firms Looking To Manage Clients Costs & Accounts Payable

The ability to match bills with their appropriate client cases. Your law firm isn’t a private legal defense for Bill Gates (though if it is, that’s actually pretty cool), you have many clients who all need your work and who all pay the bills. Sometimes, you will come across the problem where you will be working on multiple cases for one client, and in that situation, you need to be able to link the bills from the vendors to the specific case it is associated with. You don’t want to mix up vendor bills or confuse payments unless you enjoy explaining mistakes to your clients and lien holders. Find a legal specific accounting solution that allows you to tie vendor bills directly to the matter they are associated with.

The ability to hold bills. It would be great if bills were paid when they’re received, but unfortunately, that’s not often the case. Holding bills when a vendor has provided its goods/services and the client hasn’t paid the firm is important. This is good for your firm’s cash flow and keeps it healthy. When looking for an accounting solution for your firm, ensure that it has the capability to track the due dates of your clients’ bills and send reminders.

Differentiation between bills for your clients and bills for your firm. Making sure you know which bills are which is extremely important, as you don’t want to end up charging your firm’s bills directly to your client (see first feature.) Clients can sometimes use retainers or trusts to pay for your legal assistance, meaning you may receive payments that you haven’t earned yet. That’s not a problem assuming the money is being used for the right services, but it’s prohibited and illegal for your firm to use that money for anything else. If you’re not precisely recording your client’s transactions, your firm could be in serious trouble!

Finally, there is appropriate allocation. Sometimes your firm will get a single bill from a vendor that includes charges from more than one client. If this happens, you need to make sure the bill is paid with the charge split perfectly between the client’s based on their purchases so you don’t misuse money and get in legal trouble. This can all be easily handled, however, by a good accounts payable system, like CosmoLex.

Use Legal-Specific Accounting Software To Manage Accounts Payable & Client Costs

Accounting is complicated, annoying, and tedious, don’t worry, I know. It’s even worse when that job is thrown to an already hard working lawyer who doesn’t have much time to do it. Make your life easier and use a legal-specific accounting software like CosmoLex, it’s one less thing to worry about.

Rick Kabra

Dr. Rick Kabra is President of CosmoLex Cloud, creator of cutting-edge technology solutions to help solo and small law firms law firms. Rick has a Ph.D. in Electrical Engineering from NJIT and has over 10 years of experience in the legal software industry catering to the specialized technology needs of small to mid-sized law firms. Rick has given numerous seminars and published articles on legal technologies such as law practice technology management, cloud computing, and legal billing, business & trust accounting compliance.