This is a guest post written by Loretta Ruppert, Senior Director of Community Management for LexisNexis’ practice management team, including law firm management and legal billing software. She has experience as a business owner, a technology and business consultant for law firms and other professional services firms and is an expert in developing back office software.
Many attorneys are finding themselves with a shingle open for business, some by choice and others for survival. Owning your own law firm can be exciting and scary at the same time. No matter how you got here, you now own your own business and need to be aware of what to consider when looking for a billing and accounting software. First, let’s start with the basics.
Why do you need billing and accounting software? Why not use a word processor, spreadsheet and a manual checkbook? You can! But if you do, you end up recording your time on sheets of paper and when it’s time to prepare a bill for your client, you are re-typing the information to create the bill. Don’t forget about the risk of mis-typing the time worked or calculating the total bill due.
Likewise, you can write checks to pay your bills using a checkbook. Once again, this information will get re-entered by you, your bookkeeper or accountant into some system. Why? Because at the end of the year, you’ll need to file your taxes and need to know how much you earned and where you spent your money.
If you have been convinced to go with technology for your billing and accounting needs, you are faced with a plethora of billing and accounting software options to choose from. You can buy some software at the big box stores and others from legal specific vendors. Is there a difference? And if there is, why should you care?
With off-the-shelf billing and accounting software, you might be able to track your expenses and bill your clients, just like you can cook food using your dishwasher. It can be done, but does it make sense and more importantly, how does it impact your ability to bill more time? Below are six reasons why you should select legal specific billing and accounting software programs for your law practice, rather than relying on generic options.
1. Time capture – Enter it once and it’s done!
As a practicing attorney, you get many interruptions throughout the day. You need a way to record what you are working on, not onlyso that you can accurately bill your client, but also so that you have detailed records of the work you performed for the client in case a dispute arises in the future. Look for legal specific software with timers that can be started and stopped in the programs and platforms you use every day, like word processing, spreadsheets, email, calendar and yourweb browser . Most legal specific software provides a traditional timesheet also with timers to record your work. When you click done, the time entry is saved to a client and matter. You can choose whether you want to record the time by the minute or in increments of time, like 6 minutes or quarter hours, etc.
2. Expense Capture – Out-of-pocket vs. Soft
For client related expenses, you need to differentiate out of pocket costs such as recording and filing fees from soft costs, i.e. photocopy and postage charges. The IRS released audit guidelines that specify a law firm cannot count client reimbursable expenses against their income for a given year. Essentially, the IRS views advancing expenses on behalf of clients as providing your client with a loan.
Legal specific software can track the difference between an out-of-pocket cost and a soft cost and can properly account for them on your financial statements. (Note: the way expenses are accounted for in contingency cases may be different. See this article referencing Boccardo v. United States).
3. Specific Billing Needs
Law firms must have billing and accounting software which allows for flexibility in billing arrangements beyond hourly billing, including flat fee, retainer or contingency billing. Legal specific software allows for this and more.
Your bill is a representation of your law firm; it tells a story and should look professional. You don’t want to send your client’s a bill that looks like an auto part store invoice, which is what may result when you use some off-the-shelf software.
4. Trust Accounting
In an effort to minimize risk of non-payment, more law firms are now requiring clients to provide trust funds to cover fees earned and expense disbursements. Having accurate trust accounting records, bank reconciliation reports and reports of trust account balances by client is a must-have if you are accepting trust money from clients.
Trust accounting is not taken lightly by local bars – you cannot co-mingle funds or take funds before they are earned or you can face disciplinary action. Legal specific software has built-in safeguards which prevent this, including not allowing a firm to overdraw a trust account, and allowing you to set criteria so you can only apply trust funds to fees or expenses at the time of billing. Some software will print a check directly after billing for the fees owed to you from clients.
5. Manage Who Owes You
Knowing who owes you money is critical. It’s also important to be able to take a payment and have it applied to the appropriate account and properly reflected as income for your firm. Legal specific billing and accounting software provides you with choices for how payments are applied. This feature is important in cases in which the bill on a matter is being paid by more than one party, or where a payment should be applied to expenses, rather than to the legal fee.
6. Integrated Accounting – One System
Having a billing system that includes accounting is a plus. It decreases duplicate entry and reduces the potential for errors to occur, while eliminating the need for you to learn yet another software program. An integrated solution provides peace of mind – you know your bills won’t be missing any time or expense. When you write checks, the information will automatically be recorded on the correct reports and will appear on the client’s next bill.
Having all of your firm’s information in one system makes it easy to provide your accountant with the information they need.
Lawyers have unique needs and requirements that must be met in order for them to meet their professional and ethical responsibilities to their clients. These needs and requirements must be taken into account when selecting a billing and accounting solution for your law firm. Review your options and make an informed decision based on your firm’s – and your clients’ needs.
What are you looking for in a legal billing and accounting software program?