Challenges of Credit Card Acceptance For Law Firms
On the surface credit card acceptance for law firms seems like an open and shut case. It’s a true no-brainer with many benefits. Law firms who accept credit cards see a 30-40% improvement in their cash flow. Clients enjoy the ease with which they can submit payments. With rewards available from multiple vendors, many clients absolutely prefer to use credit cards.
With multiple benefits, you may find yourself scratching your head trying to figure out why more law firms aren’t accepting credit card payments already. The truth is that while there are many benefits associated with credit card acceptance for law firms, there are also very real concerns. Very real concerns that could result in very real bookkeeping and compliance consequences in your firm.
Areas of Concern Around Credit Card Acceptance for Law Firms
When considering the acceptance of credit cards for your law firm, there are two major areas of concern. One area of major concern is external and it pertains to how credit card merchant service providers operate. The other is internal and has more to do with how your firm is set up to receive funds via credit card.
Credit Card Acceptance Issues Associated With Credit Card Merchants
A major issue behind accepting credit cards as a law firm is that law firms face a very unique set of requirements associated with legal accounting. Many credit card merchants are set up to cater to restaurants and retail businesses. Which is great for restaurants and retail businesses, but it cannot effectively serve a law firm. Firms must turn to a merchant provider that is specific to the legal industry, like LawPay.
A legal-specific vendor understands specific legal accounting requirements associated with IOLTA trust fund accounting compliance. The proper setup of a legal credit card acceptance service allows for law firms:
To keep separate merchant accounts for trust accounts and business or operating account– If a law firm allows for commingling of trust and operating accounts, they run the risk of disbarment for non-compliance. A legal credit card acceptance service facilitates for unique merchant accounts for different bank accounts.
To remove fees predeposit– There are no deposit fees associated with IOLTA trust fund accounting. This ensures that when trust credit payments posts to an IOLTA account the amount received will always match the sum of payments when credit cards are batched.
Remove fees at month end– For improved system management a legal credit card merchant removes all fees collectively at month end and that too only from a business account. This improves the efficiency of the system by not requiring fees to be removed from individual credit card batches.
To isolate chargebacks to operating accounts– Chargebacks are a demand from providers for funds to make good on fraudulent or disputed transactions. It is required that these funds are withdrawn from operating funds and not trust funds.
Internal Concerns Associated With Law Firms Accepting Credit Cards
While the concerns previously mentioned all have to do with a merchant providers ability to meet the unique requirements of a law firm, there are also concerns associated with how your firm handles it’s bookkeeping. With many firms using two separate systems for billing and accounting, multiple challenges can arise. Before we figure out how to meet and defeat these challenges, let’s identify what they are:
1. How will your accounting system understand which invoices are actually being paid?
When your firm charges a client, it is done through your billing system. Alternatively, your client may pay bills online. Either way, the payment will post to your accounting system. Unfortunately, unless these systems are either integrated with each other or manually reconciled constantly, there is no way for your accounting system to understand what invoice your payments should be attached to.
Not being able to account for which client funds should hold each payment could lead to the commingling of funds and accounting compliance issues for your firm.
2. How will your firm manage credit card “batching”?
Credit card batching allows for multiple payments from multiple clients to be posted to your accounting system as one deposit. This means the deposits are commingled with funds from multiple clients. This is a challenge specific to credit card payments and calls for daily manual reconciliation. Without reconciliation, your accounting system will not know what to do with batch deposits that come into your bank.
3. How will voids and chargebacks be handled?
Nobody is perfect and your firm will make mistakes. Sometimes your firm will need to refund money that was charged to a client’s credit card. The issue with void refunds is that they take place inside your billing system, while the funds need to be withdrawn from your accounting system. How will your firm reconcile these two separate systems?
On the other hand, when considering how your firm will handle chargebacks, the chargebacks require funds to first be drawn from your accounting system. This calls for you to manually reconcile the activity in your billing system.
CosmoLex Is The Only Complete Solution For Law Firms Who Accept Credit Cards
It’s understandable why law firms would want to accept credit cards. The benefits are there, it’s just a matter of overcoming the workflow and compliance risks associated with it. The only real solution is a law practice management software like CosmoLex that combines legal billing and accounting solutions into one.
By combining your legal billing and accounting systems your firm will be able to eliminate most accounting mistakes associated with manual data entry into multiple systems and any lack of cohesion between these two systems. Credit card payments can be easily processed in a compliant fashion through the integration of LawPay with CosmoLex’s law practice management system.