Is a contingent fee tracked as Accounts Receivable?
Law firms track accounts receivable (A/R), the amounts that clients owe a law firm for services rendered, by generating an invoice showing the amount due during a given time period. When a law firm, however, agrees to accept a contingent fee as compensation for services rendered, the client doesn’t owe anything to the firm until the attorneys secure a recovery on the client’s behalf.[1] Since contingent fee clients don’t owe anything prior to a recovery, firms don’t issue invoices for services rendered, and the time spent on cases is not tracked as A/R.
Although clients won’t owe the firm anything until there is a recovery, firms still may want to track the fees and costs associated with a contingent fee case. Specialized legal accounting programs will allow your firm to track the costs advanced and the time spent on a client’s case without adding those fees and costs to the firm’s A/R balance.