Accounting is one of the most tedious and stressful parts of running a law firm. Thank goodness there’s technology to handle some of the most burdensome tasks. If you’ve already got a practice management application that handles your accounting, it is taking care of every task it possibly could? Is it maximizing your time? If you aren’t sure whether you have the optimal accounting software for your law firm, or if you’ve had your current solution for a while and aren’t sure whether it’s the latest and greatest option, check out the five essential legal accounting software features below and compare it with your law firm’s technology.

1. Integrated general ledger firm and trust accounting

Using multiple systems for accounting, billing, and invoicing hampers productivity and leaves your firm vulnerable to mistakes from users manually inputting data. Top-tier legal software seamlessly integrates general ledger firm and trust accounting with timekeeping, billing, and more.

Fully integrated accounting ensures that your accounting operations are not only highly efficient but also remarkably accurate. The software automatically recognizes your data, eliminating the need for manual data entry and reducing the risk of errors.

2. Centralized management of firm and trust/retainer finances

Leading law practice management platforms allow you to track your bank accounts, operating accounts, and related information in one central place. With fully compliant trust and firm accounting, you can monitor every dollar moving in and out of your firm without fear of penalties. A centralized approach provides a comprehensive view, streamlining financial management.

In these tools, you can also generate detailed accounting reports in seconds. Top legal software has built-in budget, trial balance, profit and loss, and general ledger reports. This feature allows you to filter and view your accounting data with a single click, providing valuable insights into your financial performance.

These platforms also allow you to gain insight into firm and client financials at a glance. Their dashboards will populate with customized views that allow you to see overdue bills, deposits, unbilled expenses, outstanding vendor bills, and more, saving you time and clicks. Better yet, advanced legal accounting software allows you to control access permissions, so you can restrict users and groups from editing, viewing, or sharing specific categories of data, including financial reports, billing rates, account balances, and more.

3. Streamlined management of multiple trusts and retainers

Clients often expect firms to manage multiple trusts and retainers for a single matter. Top legal software rises to this challenge by enabling easy management of multiple trusts and retainers under one or many matters. This feature enhances efficiency and meets the modern service expectations of clients.

With modern legal accounting software, you can track multiple IOLTA accounts efficiently by automatically assigning accounts for each client trust. This feature provides visibility into the flow of money in and out of your accounts, ensuring accurate and transparent financial management. These tools also perform automatic three-way trust reconciliations, comparing your bank balance to your trust ledger and to individual client ledger balances, improving compliance with state bar requirements and IOLTA best practices.

4. Automated transactions, from client payments to trust replenishment

Top legal software automates the recording of client payments. Once a payment is deposited, it’s instantly reflected in your accounts and financial statements, making your payment processes more accurate and efficient.

These systems also streamline client funds management by automatically accounting for trust/retainer funds. You can set a replenishment threshold that automatically notifies clients when their retainer funds are running low and then auto-apply replenishment funds to bills.

Some tools even have functionality that identifies matters with accounts receivable balances and available funds, allowing you to quickly create bill payments. The software facilitates smooth transactions, from identifying available funds to writing checks from your IOLTA to the operating account.

5. Increased accounting vigilance to prevent errors

Accounting accuracy is paramount for any law firm. Top legal software incorporates double-checking accounting security to limit human errors. These systems flag entries that don’t reconcile with the rest of your data, keeping your accounting data accurate, consistent, and audit-ready.

If you accept credit cards, and you definitely should to meet client expectations, your software should not only integrate with tools like Plaid that help you add, match, and reconcile credit card transactions, but it should also ensure the payment processing service fees are properly allocated to your firm’s operating account rather than the client’s trust account to avoid noncompliance with IOLTA accounting rules.

Invest in next-level legal accounting software

While basic law practice management systems can handle fundamental accounting tasks, investing in top-tier legal software unlocks advanced features that elevate efficiency, accuracy, and compliance. The comprehensive financial management capabilities that leading legal software offers streamline operations and empower law firms to navigate the complexities of modern legal accounting with confidence.

Ready to upgrade your legal accounting practices? Contact us for a free demo today.

As the year’s end approaches, it’s time for law firms to close their books and start end-of-year audits. This annual task ensures that accounts are balanced and sets the stage for a financially sound start to the new year. However, this process can be stressful if your law firm doesn’t follow accounting best practices.

Here’s a step-by-step guide that will help your law firm sail through the audit process. (You can also download our handy end-of-year accounting checklist for law firms here.)

Step 1: Organize your financial records

Review and organize all financial records, including invoices, receipts, bank statements, and expense reports. Ensure that all transactions are accurately recorded and categorized throughout the year to maintain a real-time overview of your firm’s financial health.

Step 2: Tell timekeepers to enter their time

Check whether billable hours are up to date. Nudge your attorneys and other timekeepers to get their time in regularly as you head into the holidays. Automated time capture can make it easier for your timekeepers to stay on top of their billables.

Step 3: Update all client billing records

Run your accounts receivable reports to understand what amounts are outstanding. These reports can help you determine what amounts to chase down and what to write off.

Develop a comprehensive list of clients with unpaid invoices, including their name, matter number, amount owed, and date overdue. Prioritize invoices for action, starting with the most recent unpaid ones. The odds of collection decrease with time, especially when you’re trying to collect over the holidays. Start reaching out before Thanksgiving to clients who have been historically slow to pay outstanding balances.

We recommend starting the collection process by sending reminders to clients regarding their outstanding balances. If you aren’t already, accept online payments to make it easier for clients to pay you in just a few clicks.

For aged invoices, consider offering clients the opportunity to settle a portion of the debt in exchange for forgiveness of the remaining balance. You may also want to set up a payment plan for clients who might need another quarter or two to pay your law firm back in full.

Step 4: Review expenses

Review all expenses your firm incurred throughout the year. Verify that these expenses are accurately recorded, categorized, and supported by proper documentation. If you have any outstanding debts with vendors or contractors, settle them before you close your books.

Step 5: Update your fixed asset records

Update records of your firm’s fixed assets. These long-term assets have a usage life of longer than a fiscal year. Some examples of fixed assets are new laptop computers, software, and office furniture.

Run depreciation calculations for these assets using your accounting software. You may be able to write off this depreciation as a tax deduction.

Step 6: Verify your payroll tax

Review and verify all payroll tax withholdings and payments. Make sure you accurately report these taxes to federal and state authorities.

Step 7: Check your employee records

Verify and update employee and contractor records for W-2s and 1099s. Confirm that all necessary information is accurate.

Step 8: Study your financials

After you have finalized and entered all of your revenue, expenses, and data into your financial systems, run the following financial statements:

Step 9: Reconcile bank and trust accounts

After you record all revenue and expenses, perform bank reconciliations to ensure that all financial records line up with bank statements. Investigate any discrepancies thoroughly.

A best practice is to reconcile your statements monthly and as soon as bank statements arrive. Otherwise, your law firm will need to contend with 12 months of bank statements in a short period, making it more challenging to identify errors.

Additionally, many jurisdictions require law firms to reconcile client trust accounts at least quarterly, if not monthly. You should still complete year-end trust account and retainer reviews. Your annual review is an opportunity to double-check reconciliations done throughout the year and correct any mistakes. The ledger sheet for each client’s trust account should line up completely with the corresponding bank statements.

Also review client retainer balances to determine which retainers need to be replenished. Ensure that all earned funds have been appropriately transferred into operating accounts from retainers held in trust.

Step 10: Close your books and plan for the future

After you have finalized and studied your year-end financials, close your books. You may want to set a lock date to prevent future changes plus a password to limit access.

The next step is to review and adjust your billing and accounting practices based on what you learned. For example, your data will show whether you need to adjust your time tracking and billing practices to ensure that all timekeepers record their tasks and send out bills on time.

Every day is the right day to get your law firm’s books in order

The best way to prepare for the end-of-year audit is to stay on top of your firm’s accounting all year long. By following these best practices, your firm won’t build up problems over the year.

Stay tuned for our next blog, where we’ll explore how law firms can financially prepare for the new year. In the meantime, contact us to learn how we can help you close the books on this year.

Written by Robin Neill

More and more law firms are recognizing how important it is to manage themselves like a business to survive in today’s competitive market. Businesses operate with efficiency, strategic planning, and a keen eye on the bottom line — principles that law firms can adopt to enhance their operational effectiveness. By embracing business management practices such as budgeting, law firms can optimize their resources, streamline processes, and invest in technology to improve their service.

A budget provides a structured roadmap for financial stability, strategic decision-making, and sustainable growth. Creating a law firm budget requires careful planning, collaboration, and attention to detail. Here are seven steps that can help your law firm create an effective budget.

1. Start the budget planning process early

Budgeting shouldn’t be a last-minute task. Law firms should initiate the budgeting process well in advance, ideally in the third quarter. Starting early ensures firms have ample time to assess their current financial standing, analyze past spending patterns, and anticipate future costs.

2. Analyze past performance to project future expenses

A fundamental step in budgeting is examining the firm’s profit and loss (P&L) statement from previous years. By comparing actual expenditures with previous years’ data, law firms can identify trends and patterns.

Areas to focus on include salaries and rent, which tend to be the largest expenses in a law firm budget. Don’t forget to consider inflation.

3. Set clear goals

Setting clear, measurable, and realistic goals is fundamental to the budgeting process — and those goals must align with the firm’s overall strategic objectives. Whether the aim is to sustain current levels of success or to expand to new locations or practices, having a well-defined vision guides the budgeting process effectively.

For instance, a law firm planning to increase its partner count from 10 to 20 in the next year needs to account for higher advertising costs, additional attorney salaries, and potential increases in professional dues and liability insurance.

4. Involve the right stakeholders

Successful budgeting necessitates collaboration between key stakeholders. This includes financial experts, managing partners, human resources professionals, and accountants. Each participant brings a unique perspective to the table, ensuring that the budget addresses all aspects of the firm’s operations.

Regular consultations and brainstorming sessions with these stakeholders can provide invaluable insights and foster a culture of financial transparency within the firm.

5. Consider unforeseen expenses

While analyzing the P&L statement, law firms often overlook certain unexpected costs. Items such as professional liability insurance, litigation expenses, or regulatory compliance costs can fluctuate, impacting the budget unexpectedly. By accounting for these variables and having a contingency fund, firms can avoid financial strain when unforeseen expenses arise.

6. Focus on employee well-being and benefits

Recognizing that employees are a firm’s most valuable asset, law firms should offer a competitive salary and benefits such as health insurance, retirement plans, and professional development opportunities. A comprehensive benefits package can attract top talent and ensure staff retention and satisfaction. Additionally, employee well-being initiatives such as mental health support programs or flexible work arrangements can enhance productivity and foster a positive work environment.

Law firms must factor in the costs of these employee benefits while budgeting. Firms should also take into account salary increases, such as cost-of-living adjustments, to stay competitive in the market.

7. Leverage legal software and other analytical tools

Law firms should invest in advanced legal software with accounting features to track expenditures efficiently. These legal technology tools provide detailed reports on profitability based on various parameters, such as attorney performance, case type, and office location. Implementing artificial intelligence-driven tools can deliver insights into future financial trends and assist firms in making proactive budgeting decisions.

Budget now and your law firm will reap the rewards later

Transforming a law firm into a business entity demands a proactive approach to budgeting. Law firms can use budgets to position themselves for sustainable growth, client satisfaction, and long-term success.

Centerbase has a robust suite of tools designed to optimize law firm financial performance. Get in touch for a free demo of our tools and learn how our software can improve your law firm’s profitability.

Written by Robin Neill

Law firms, like any other business, need to have a firm grip on their finances to thrive and grow. Yet many law firms struggle with budgeting and other tasks that help their firm run like a well-oiled machine.  

In this article, the first in our new series on budgeting for law firms, we’ll explore the challenges that law firms face when it comes to their finances and the benefits of a law firm budget. 

Why do law firms struggle with budgeting? 

Budgeting has never been a favorite task of legal professionals. After all, attorneys don’t typically go to law school to earn a business degree. They’re trained to understand the intricacies of the law, not the detailed aspects of business planning.  

However, the business side of law is just as important as legal practice. The problem is, law schools don’t offer courses that teach business skills, such as how to manage law firm finances. This knowledge gap can hinder attorneys’ ability to feel confident about business financial decisions. 

Moreover, most attorneys don’t want to focus on the numbers. They want to practice law and provide legal counsel to their clients. There’s no extra time in the billable day to crunch the data and generate budgets. This can overshadow the importance of understanding a law firm’s financial health and lead to neglecting the practical business aspects of running a firm. 

Finally, many attorneys think they can set their firm’s budget once and forget it. Attorneys may struggle to balance client demands with long-term strategic planning for the firm. Law firms must recognize that budgeting is not a one-time event but rather an ongoing process that requires regular monitoring and adjustment. 

Fortunately, there’s a growing understanding within the legal industry that law firms are, at their core, businesses. While the law is the foundation of the work, the business side is equally critical for long-term firm sustainability and growth. 

Why budgeting matters for law firm success 

Why is budgeting so important for law firms? The answer lies in its direct impact on the firm’s financial sustainability. Here are three key reasons why law firms should prioritize budgeting. 

Where can law firms get help to improve their budgeting? 

Law firms don’t have to go it alone, muddling through the budgeting process. a variety of resources that can help. 

First, consider whether you need to bring in an outside expert, such as an accountant or financial manager. You need access to an expert who understands the intricacies and challenges specific to law firm budgeting.  

Podcasts and online resources can provide insights into financial management best practices. Attorneys may also seek advice from local or state bar associations, which may offer salary surveys and other useful financial data. 

Additionally, attorneys should embrace collaboration. The legal profession is filled with experts who love to share their experiences and provide feedback. Asking for referrals and engaging in dialogues with peers can lead to fresh perspectives and better financial management. 

And, of course, legal technology is a game-changer for financial management in law firms. Implementing a robust system that tracks expenditures and provides meaningful financial reports is essential. These tools should offer insights into cash flow, expenses, profitability and more. 

Budgeting leads to a stronger law firm bottom line 

Budgeting isn’t just about numbers; it’s about building a strong foundation for the future of a law firm. When attorneys recognize the importance of budgeting and seek the right expertise and tools, they can  positively transform their firm’s financial practices. 

Sign up for a free demo to learn more about how Centerbase can help you take the pain out of the budgeting process. 

Almost nine in ten Americans use some form of digital payment. It’s no wonder, then, that law firm clients expect to be able to make payments online. Not only does this make handling bills easier and faster for your clients, but it’s also good for your law firm’s cash flow. Online payments close the gap between the time a client is billed to when that client makes good on payment.

In this article, we’ll cover how your law firm can accept online payments while remaining compliant with applicable law and ethical guidelines. We’ll also note some of the best features to look for in your payment solution software.

Do clients expect online payment options? 

Yes! Clients expect law firms to deliver a memorable client experience, which includes making payments quick and easy by offering a variety of payment options. Clients want the flexibility of making payments via credit cards, e-checks, and digital transfer services like ACH. In fact, a recent study found that 40% of clients would never hire a lawyer who didn’t take credit or debit cards.

This variety of payment options is also good for your firm and its bottom line. By offering several convenient payment methods, law firms incentivize their clients to pay invoices faster and completely. When you expand your firm’s acceptable methods of payment, you’ll likely find that you spend less time waiting for checks in the mail, less time hounding clients for late payments, and more time on billable work.

Is accepting online payments complicated?

Accepting online payments isn’t complicated, but it does require planning and a little help from technology. It’s not inherently risky for your law firm to accept online payment. Nearly every jurisdiction in the United States has given the green light for law firms to accept credit card payments for legal fees and expenses. But, as with all legal fees, your firm must comply with applicable legal requirements and ethical responsibilities.

In broad strokes, your firm must comply with the rules requiring the separation of client and third-party funds from your law firm’s operating funds. What is the best way to do this? Use payment software developed for attorneys with this exact ethical issue in mind. Without it, your firm might not be compliant.

While your law firm accepting online payment isn’t dicey, using a non-legal payment solution is. These software options often fail to properly handle law firm transactions according to the trust accounting principle noted above as well as Interest on Lawyers’ Trust Accounts (IOLTA) guidelines. The result can be noncompliance, which is bad for everyone — including your law firm’s reputation. The right technology ensures that your law firm has separate operating and trust accounts and ensures that processing fees are deducted from your operating account only.

If you set yourself up correctly, your firm will never have to worry about an inadvertent ethics violation and can focus on delivering exceptional client work.

What makes online payments compliant or noncompliant? What can I do in my firm to ensure compliance?

With the various rules and regulations regarding legal payment, fee collection comes with a host of unique considerations, especially when accepting credit card payments. The right legal payment processing platform will do the behind-the-scenes work for your law firm, ensuring that all online payments accepted comply with the ABA Model Rules of Professional Conduct and IOLTA guidelines.

When picking a payment solution, we recommend looking for the following four features to ensure compliance and improve ease of use.

1. Manage multiple trusts/retainers under a single matter

Not only do clients expect to be able to pay online, but they also expect that your firm will manage their multiple trusts and retainers. Rather than falling short of their expectations, with the proper tools, you can easily manage multiple trusts and retainers under one or many matters and even track them at the client level.

By having the power to track both your firm and client finances in one central place, you can keep an eye on money moving in and out of your firm with complete faith in your firm’s compliance.

2. Separate earned revenue and unearned revenue

Under most state laws, law firms must keep earned revenue and unearned revenue separate. The right payment tool recognizes when payment revenue is unearned (that is, applied to a trust replenishment) and when it is earned (applied to a billing entry) and deposits it accordingly.

You need a legal technology platform that can take an invoice payment and split it between two accounts, keeping your firm in compliance, saving your accounting team time, avoiding mistakes, and raising your collection realization rate. Avoid tools that require you to have either a trust account or an operating account and then require a bookkeeper to determine whether and how to apply and move the funds. That’s asking for human error and compliance woes.

3. Easily manage your IOLTA accounts

You need an efficient way to track multiple IOLTA accounts. With a robust legal platform, you can automatically assign accounts for each client trust so that you can track the flow of money, giving you visibility into where your firm and trust money meet at all times.

4. Apply available funds to pay off client bills automatically

Instead of waiting for that check to arrive in the mail, you can sweep through accounts to find matters with accounts receivable balances and available funds. With this information, your firm can quickly create bill payments and then write checks from your IOLTA account to an operating account. This way, you’re always efficiently applying your client’s money (and making them happy).

New year, new you, same audit.

Every law firm should start 2023 with balanced accounts and a solid paper trail. But getting there can be tough. Closing the books on 2022 takes time and methodical thought. Your law firm can minimize the friction by streamlining its accounting process with the right tech. Getting started early doesn’t hurt, either.

Your law firm’s year-end closing process comes together through reconciling bank accounts, adjusting entries, and preparing financial statements for analysis. This article will guide you through the steps necessary for a sound end-of-year bookkeeping process. With this guidance, your law firm will welcome 2023 with open arms. Let’s get started.

What are good ways to prepare for end-of-year audits?

Start by getting your ducks in a row (and do it early). 2023 is right around the corner, and completing a comprehensive financial review of your firm’s 2022 successes is important to ensuring that 2023 is more of the same. Take the time now to review your records, get into contact with clients with outstanding balances, and budget properly. If you get started now, we bet you can still squeeze in some holiday cheer.

The following three steps can help you get your law firm’s finances in order for the end of the year.

1. Account and collect now

Billing and collections are critical to the continuation of your law firm, so we recommend that you do indeed pass go and collect $200 (we also understand that this is easier said than done).

As you know, it’s best practice to collect accounts receivable as soon as possible. You also know that this isn’t always possible with clients and that sometimes creative thinking is necessary to get paid. When it comes to end-of-year accounting and collections, you might have to get extra creative.

Start by double-checking that your law firm’s time entries and billings are up to date. We recommend ensuring that all lawyers and other billing staff have tracked their billable hours through the end of November, with subsequent hours to be monitored at the beginning of December. Run all of your end-of-year reports, including accounts receivable, to get an idea of what’s outstanding and which clients you’ll need to nudge. Use these reporting tools to identify what is worth chasing and what your law firm can write off. As you know, the odds of collection decrease with time and only decrease only further once the year has come to a close.

When it comes to the actual collections, start reaching out now (and certainly before Thanksgiving) to those clients that have been historically slow to pay outstanding balances. Remember to make your end-of-year bills clear and concise, and make it known that you expect to be paid before the conclusion of the year. If needed, try billing every two weeks in the month of December. We also recommend sending reminders to clients regarding their outstanding balance — clients are likely also wrapping up end-of-the-year financials and might even thank you for the reminder. The end of the year might also be the time to begin accepting credit card payments (or other alternatives) or setting up a payment plan for clients who might need another quarter or two to pay your law firm back in full.

By using the right resources and technology advancements, your law firm can streamline its billing and collections process so that your end of year can be jolly and bright and not filled with paperwork.

2. Review your financials and plan for the future

The past is the best indicator of what’s to come in the future. By taking stock of your most recent fiscal year, your law firm will be able to best prepare for the coming one. Once all revenue, expenses, and data are finalized and entered, your law firm should run the following financial statements:

The end of the year also presents a good opportunity for your law firm to review its practices related to legal billing and firm accounting. Your firm can run helpful reports related to time tracking and billing to ensure that all firm members have been recording tasks in a timely and comprehensive manner. This data can also reveal any delays in the process of converting tracked time into client invoices (and then into income).

By reviewing and auditing your law firm’s yearly finances, you’ll be able to set intelligent goals for the year to come. You’ll also know when to be conservative and when to reach. Your 2023 bottom line will thank you.

3. Perform reconciliations

After your law firm records all revenue and expenses, it should perform bank reconciliations to ensure that all financial records line up with bank statements. Any discrepancies need to be reviewed and investigated thoroughly. Best practices here are to reconcile monthly and as soon as bank statements arrive. Otherwise, your law firm will need to contend with 12 months of bank statements in a short period, making it more challenging to identify errors.

Additionally, many jurisdictions require law firms to reconcile client trust accounts on a monthly (or at least quarterly) basis. This does not, however, negate your law firm’s duty to complete year-end trust account and retainer reviews. An annual review is useful for double-checking reconciliations done throughout the year to ensure that no mistakes or miscalculations were missed. The ledger sheet for each client’s trust account should line up completely with the corresponding bank statements. Get on top of this now, and it’ll make a difference in your end-of-year audit and day-to-day operations.

What proactive actions can you take to prepare for an audit?

We get it — you’re trying to minimize the pain of your end-of-year audit. The best way to go about doing so is to track regularly and prepare all year long. That means your law firm should be checking its receipts monthly.

Regular expense tracking must be a part of your law firm’s year-end closing process. By following accounting standards and making sure your law firm’s balances actually balance, and by tidying up any issues along the way, your law firm won’t come into the audit with a buildup of problems. Be sure to account for money going out of the firm and to track revenue coming in. Without this vital information, your law firm will lack an accurate picture of its financial well-being. Don’t go into 2023 believing that your law firm is on more financially solid ground than it actually is. Accurate and regular review will help your law firm avoid common problems like inadequate cash flow and the inability to cover firm overhead.

Tech can make being proactive easier. The most successful law firms integrate their accounting processes with a cloud-based practice management software platform that helps them improve their firm’s efficiency, leading to easier end-of-year audits. When your firm chooses the right technology, you help your lawyers reduce the time that they’d otherwise spend on administrative tasks (think timekeeping, invoicing, and collecting overdue invoices). You’ll also be able to more accurately (and quickly) project your firm’s finances and study your historical and projected cash flow so you can plan more accurately and set realistic goals for 2023.

Save yourself headaches by going into your end of year armed with receipts.

How does an audit prepare you to enter the new year?

Auditing is key to success. It will provide you with a bird’s-eye view of your law firm, giving your firm’s management and administrators the tools they need to either shake things up or maintain the status quo. By conducting a proper audit, you’ll have important data to move through the new year.

An audit will help your law firm compare 2022 revenue to 2021 revenue. Is your firm swimming in dough? Was Q3 tougher this year than last? Are you overspending on legal subscriptions? By comparing yearly revenue, your law firm will be able to make intelligent, data-driven decisions for 2023. You’ll also be able to determine and make adjustments on spending more broadly. Maybe your law firm is tight on cash at the beginning of the year but flush by the end. By reviewing smaller yearly trends, your firm can better account for when it can afford to spend and when it needs to be pennywise.

Your yearly audit can also inform billing and collection practices. Maybe your clients need more regular reminders. Maybe your clients are all paying on time. Maybe it’s even time to fire a client for regularly missing payments. By taking stock of these trends, your firm will be able to focus its efforts on paying clients.

Now’s the time to get your law firm ready for an audit

By getting your law firm’s end-of-year finances in order, your firm will be primed for growth and ready for change. Data collected in connection with your end-of-year audit will help guide your firm through 2023. With the right practice management software, your firm will be able to do it all. This includes enjoying the holidays and decking the halls with bounds of billables.



“Bills, bills, bills.” They’re top of mind for law firms with associates and partners struggling to hit their billable hours requirements. But most legal professionals dread tracking their time down to the minute. And law school doesn’t prepare you for just how much of the day lawyers spend breaking down their work into six-minute increments.

Your law firm likely bills its clients by the hour. Therefore, you’re probably familiar with the usual roadblocks to hitting billable hours targets. Typical problems throughout the workday include projects that take up non-billable time such as client development, career development and mentoring for younger lawyers, billing and time spent on administrative tasks, and slowdowns associated with outdated software and inefficient processes.

But maximizing your law firm’s billable hours is good for everyone in your firm. The only question is, how can you achieve this goal? Fortunately, you don’t have to be in a New York law firm to solve this problem). The right legal tech can make sure that no billable time spent on legal services goes uncaptured and that you’re billing clients accurately — whether you’re working for a big law firm or a public interest shop.

We’ll explain how to make the most of the long hours that your timekeepers bill using technology. But first, let’s talk about what is and isn’t billable.

What are billable hours?

A billable hour is an hour spent serving the client. It includes all the time that attorneys and paralegals spend actually thinking about or working on a matter or case.

Examples of billable time include revising a purchase agreement; drafting an employment agreement or other contract; writing a brief or appeal; strategizing, researching, and corresponding with clients; and attending hearings or meetings. Put simply, it’s time you spend on professional tasks that your law firm can and should charge to its client at a previously agreed-upon rate.

The billable hour has been around for a long time. However, the legal industry has seen a movement toward a range of alternative billing structures. A few examples include flat-rate billing, subscription-based fees, contingency fees, limited scope representation, and sliding scale fees.

Regardless of what structure your law firm implements, the key is making sure that you’re tracking time accurately and getting paid promptly by clients for services you render.

What is the difference between billable and nonbillable hours?

Non-billable hours may be fun in the moment, but not when it comes to billing time. Associates don’t like recording them on their timesheets, and partners generally don’t enjoy seeing them either. But they’re essential work for the lifeblood of your law firm. The key is to minimize the time your associates have to spend on unnecessary non-billable work that doesn’t add value to your firm.

So, what is non-billable time? Non-billable hours are any hours that you can’t bill to a client. This includes time spent on administrative tasks (like billing and collections), wooing new clients and other business development activities, attending continuing legal education (CLE) seminars, participating in ABA and other bar association meetings, and schmoozing at networking events.

Non-billable work is important to your law firm. It keeps it organized, running, and growing. Issues arise, however, when lawyers spend needless amounts of time on administrative tasks that they could automate or delegate. By automating administrative workflows with legal technology, your law firm can decrease the time that its lawyers and paralegals spend on non-billable tasks and improve billing productivity.

How are billable hours typically tracked and calculated?

Billable hours are tracked in different increments depending on your law firm’s preference. The usual suspects are the six-minute increment and the fifteen-minute increment (rounded up or down). Timekeepers must track their time accurately to bill clients properly. Accurate timekeeping also helps law firms set proper pricing strategies and billing metrics.

Most of the time, calculating your billable time is straightforward. You simply multiply the number of billable hours you worked by your hourly rate.

However, calculating the number of billable hours can get complicated if your law firm charges different fees to different clients, if it bills certain practice areas out at higher or lower rates, or if the rate you charge changes later in the fiscal year. All of these changes mean that manual spreadsheets just don’t cut it when it comes to tracking properly and getting paid.

To calculate your billable hours, we recommend the following best practices.

1. Set hourly rates for billable hours

This requires forethought and analysis of your law firm’s finances (reporting is your best friend here). Questions to ask yourself when setting hourly rates include: What is the seniority level of the attorney being billed out? How specialized are the services being offered? What is the quality of the client relationship? What is the market saying? When determining hourly rates, we recommend that your law firm also consider and account for other expenses such as overhead costs, non-billable tasks associated with the matter, and other employee-related costs like vacation time.

2. Track, record, and add up billable and non-billable hours

You rely on your firm’s attorneys to accurately track and record their time. As discussed in more detail below, tech can help your attorneys both track and maximize their billable hours. We recommend tracking both billable and non-billable time spent on client matters. This will give your firm valuable data and help with project management. It will also help your firm evaluate whether the hourly rate charged is sufficient. When the billing cycle ends (usually monthly), your accounting department will add up all billable time and create an itemized list of services rendered.

3. Multiply billable hours by the hourly rate and add any additional fees or taxes to the invoice

This is the part where your law firm gets paid! But the billing process can become tricky if your firm charges different rates based upon the client, firm practice group, or lawyer seniority. Your firm will need to create a set of rate tables and apply those to different clients or matters.

We highly recommend using tech to ensure that your calculations and billing are correct. There are few things more embarrassing or worrying than a client questioning the accuracy or integrity of a bill.

How can my law firm maximize billable time?

Simplifying the time-tracking process and offering integrations is the best way to maximize billable time. Essentially, it helps your lawyers cut through administrative frustration and gives them more daylight hours to work on actual billable work. Other legal software can also save your lawyers and firm non-billable hours by automating routine tasks, such as billing and collections.

We recommend both encouraging your legal staff to record tasks as they are completed and setting an office-wide policy for when time-entry is past due. We understand how tough simultaneous tracking can be, especially when your attorneys are working on multiple matters for multiple clients and are in and out of the office all day for hearings and client meetings.

Mobile tracking (as discussed below) can help even your firm’s most forgetful attorneys track time throughout the day. Tracking and entering daily is just best practice. It ensures that you’re billing clients completely and accurately.

A firmwide policy for billing descriptions should also be a part of your policy governing time recording. No client wants to see a bill for something vague, like “attended meeting.” Training your lawyers on the front end will save your law firm endless time when revising client bills and invoices.

As you know, technology can help streamline your billing processes, and it can also help your lawyers draft templates with descriptions of tasks completed and billed that they can use for certain clients and matters.

Training lawyers on how to delegate non-billable tasks to support staff is another way to maximize billable time. Your law firm has support staff for a reason. To the extent possible, lawyers at your firm should be spending most of their day working on billable tasks. As we’ll discuss below, technology can help your law firm get there.

How can technology help track billable hours?

Legal tech can upgrade the way your firm’s lawyers track time, and a comprehensive, integrated tracking system is the best way to do it. An organized system will help to ensure that no billable hour goes untracked. What’s even better is that productivity tools remove the tedium out of billing, so your lawyers can spend less time writing descriptions and more time writing briefs.

Consider the following tools and features courtesy of tech.

An integrated system

Capturing time automatically through system integration will transform time tracking for your firm’s attorneys.

Mobile apps

Mobile applications for tracking and entering time, which are available for iOS and Android mobile devices, provide enhanced flexibility for your legal team. Your firm’s lawyers can enter their time from the courthouse or at the opposing counsel’s office. The fewer barriers there are to time entry, the more accurate the timekeeping. The time-tracking features in this type of legal billing tool have also become increasingly invaluable during the pandemic to those who work from home.

Improved timesheets

If you’ve learned anything from this article, it’s that everyone hates tracking and entering time. Help your firm’s lawyers get to the important stuff by providing convenient, easy-to-use timesheet templates. No one should be using an Excel spreadsheet or handwritten diary (or law practice management, case management, or document management for that matter!).


Timers are a game-changer. They help your attorneys better track multiple clients and multiple matters. Providing software where your firm’s lawyers can create client-specific templates and prewritten narrative entries for larger matters will save everyone time and headaches.

It’s time to bill better

By getting high-quality legal time management software in place, your lawyers will have more time for actual legal work. Your firm will reap the rewards of enhanced efficiency and optimization. And, not to mention, your lawyers and staff will be happier.

When evaluating new technology, you should start with thinking more about your firm’s day-to-day operations and how those procedures lend themselves to your requirements.

You’re probably constantly in the process of putting together a requirements list to include certain solutions, but let’s dig a little deeper into the questions you should be asking to ensure you’re getting the features you want from your legal practice management software solution.


Legal software should make timekeeping as easy as possible, so make sure that any software you’re considering has an intuitive interface. Next, you need to think about whether the new system meets your rounding requirements. Some firms bill in quarter-hour increments, while others bill by every one-tenth of an hour. These details need to be communicated and understood prior to diving into the rest of your timekeeping requirements.

Let’s start with the basic questions:

Some systems make you manually enter in everyone’s rates at the start of a new matter, while others let you create and assign those rate tables as you go. With that in mind, additional questions to consider include:

Billing and Accounting


It’s not a secret that no two clients are alike; the same is true for their billing needs. Being able to accommodate clients’ finances doesn’t just help your firm stand out, it also increases the likelihood of you getting paid on time. The key to determining billing requirements is to ask yourself the right initial questions, like:

How you choose to bill your clients, or how they request to be billed, will play a huge role in whether a client wants to retain you from the start. Do not take these considerations lightly as you build out your requirements!

If you don’t care to track the productivity of your allocation in compensation, then you are opening your door to a lot of software options. But, if you do care about details like this, you need to look deeper into how your software options handle flat fee billing.

As your firm grows, the one surefire thing your management will need is reports. Off-the-shelf reports may work for you in the immediate term, but the ability to produce reports on any metric on the fly is invaluable.

For your reporting requirements on billing, you need to address some specific questions:

The more intricate your billing needs get, the more advanced and granular your software needs to be. If you need to generate flat-fee bills and statements, complete trust accounting, and perform trust replenishments, you’ll need to consider additional key accounting details when evaluating legal practice management software.


With billing comes accounting needs. When you’re evaluating a software’s accounting system, the first thing you should ask is if you want integrated accounting or a system that can integrate with QuickBooks.

Fully integrated accounting enables you to be more efficient and prevents the common mistakes that occur as a byproduct of inputting manual entries into multiple systems. If the system is fully integrated, think about whether or not you use cash-based or accrual-based accounting.

When you’re evaluating individual vendors, consider:

Conventional wisdom (and an Al Pacino reference) reminds us that we should ABC: always be closing. For lawyers, the idiom might be better stated as always be collecting.

Billing and collections are critical to the success of any law firm. But timely billing and ensuring that your bills are paid in full and on time can be frustrating and challenging. These challenges are even bigger if your firm doesn’t have a dedicated billing and collections department.

Luckily, there are resources and technology advancements to help your law firm streamline its billing and collections process so that your lawyers can get back to lawyering.

Here’s what you need to know about billing for the legal industry:

What is a typical law firm billing process?

We know that one size rarely fits all, but for law firm billing processes, there is standard practice. It usually starts with your firm bringing in a new client after a phone call or email and opening a matter (or opening a new matter for an existing client).

Billable time will be logged throughout the lifecycle of the matter, and, if your lawyers follow billing best practices, they’ll track time daily. Generally, at the end of each month, your law practice will compile the billed time and related expenses for each client into a draft bill, sometimes called a prebill.

The lead attorney or originator of the client will add notes, adjust costs, and revise the prebill as needed. That prebill bill is then approved, finalized, and sent to the client for payment.

The client then pays the bill. To optimize your client service, you can offer different payment options, including check and online payments through bank transfers and credit card payments. The accounting team stays on top of payments by tracking accounts receivable and will send out reminders to clients regarding any late payments, partial payments, or non-payments.

It seems like a simple process, and it can be. But you’re reading this blog post — and we wrote it — because we both know it’s usually not. There are ample opportunities for bottlenecks: delays in opening a new matter, attorneys not logging billable hours in time, reviewing attorneys sitting on approvals, bills being sent out late, and everything in between.

Your firm relies on getting paid and paid quickly to stay afloat. A clean, concise, and consistent billing process is the way to ensure that happens. The cornerstone of the billing process is often the billable hour.

What are billable hours?

Put simply, billable hours include all the time an attorney spends actually thinking or working on a matter. Billable time is time spent attending to professional tasks that your firm can charge to a client at the previously agreed-upon hourly rate. Generally, billable time includes things like drafting contracts or briefs, strategizing, researching, speaking or emailing with the client, or attending hearings or meetings.

Billable time is distinct from nonbillable time (e.g., time spent on administrative tasks (like billing!) and continued legal education). Billable hours are tracked in different increments depending on the firm’s preference. The key is that they must be tracked accurately to bill a client properly and correctly.

The billable hour is the cornerstone of many law firms’ billing practices. However, there has been a movement toward a range of alternative billing structures.

What are some alternative billing arrangements that my firm can use?

We get it: tracking billable hours can be a drag. It’s a lament of many legal professionals. Thankfully, there are tried and true alternatives to legal hourly billing. Here are some options for your firm to consider using to bill clients for your legal services.

Flat rate billing

This fee arrangement charges the client a set price for each matter or case without calculating the time spent on the matter. Flat fees may be preferred by clients who want certainty and consistency in the amount owed.

If you use this arrangement, be mindful of the risk of underestimating the work required for a matter and setting the fee too low. Diligence is key here.

Subscription-based fee

Under a subscription-based fee arrangement, your firm provides clients with representation and advice on an as-needed basis for a set monthly fee. It also means that you’ll have a regular, predictable income.

Generally, this fee arrangement is beneficial for smaller clients who may need regular advice on matters like intellectual property and business law.

Note that a subscription-based fee is not the same as a retainer. A retainer is an advance payment for future legal services.

Contingency fee

A contingency fee is paid by a client only if the case is won. This type of arrangement is typically used in torts, such as personal injury matters, as well as in class actions. It serves an important function for individuals who cannot pay out of pocket for representation.

Generally, these arrangements pay the attorney a percentage of the overall award. If you opt for this arrangement, it’s important to consider the risk that you may not be paid for your work.

Limited scope representation

Under a limited scope arrangement, you and your client would define your firm’s involvement in the case, likely limited in scope, and your services would involve only those tasks. A common example is retaining counsel for guidance in an e-Discovery process.

Sliding scale fee

A sliding scale fee is just that: one that takes into consideration a client’s ability to pay and adjusts the rate accordingly. This fee arrangement may help your firm bring in new clients by making services more affordable.

Payment plans

Offering a payment plan may be key to your firm getting paid. Paying out a lump sum may be difficult for cash flow purposes for clients. By offering weekly or monthly payment plans, you can provide an additional service to clients and build goodwill while also getting paid. It’s key here to have clear, written guidelines on collections and payment methods.

What are some ways a law firm can standardize its billing policies?

The goal of the billing process is to get paid, and the best way to do that is to send clients bills that are timely, clear, and accurate. Standardization of your billing policies will undoubtedly help with this.

Start by creating a fee agreement template and well-defined guidelines that set forth your billing policies. These guidelines should include things like when in the lifecycle of a matter to send invoices and how detailed descriptions should be.

You should also have a written billing process that includes which attorney reviews the bill, how bills are sent out (e.g., mail or email), and what role the staff or accounting department plays in keeping track of bills.

Standardized invoice review is also essential. An integrated legal practice management software is your best friend here: you’ll speed up the process and minimize human error in compiling bills. Practice management software will also help your firm track payments collected and schedule follow-ups for those accounts that are past due. (It can also help with the collections process.)

A standardized billing practice makes it easier for everyone. Your clients will know what to expect and will be less likely to contest billing, and you’ll be able to keep better track of your expenses.

What should an invoice include?

All invoices should include several key elements. The basics include contact information for both your firm and the client as well as the invoice number for quick referencing. Your law firm’s billing codes should also be included. This way you can keep track, at a high level, of which tasks or expenses you are billing to the client.

Billing descriptions will also help with this but at a more granular level. Getting your descriptions right is imperative: they should provide just the right amount of information and be clear to help avoid any client misunderstandings. For your clients who use LEDES billing, it’s important to draft time entries carefully and accordingly (e.g., avoid block billing and pay attention to the clerical and paralegal-type tasks performed by an attorney).

The invoice should also include the payment method, the total amount due, and the date by which the client should pay the bill.

Having uniform, thoughtful invoices will ensure consistency and help make sure that your firm gets paid for its good work.

What are some ways to improve billing productivity and get paid faster?

For a moment, think about things from your client’s point of view. What would you want and expect from your lawyer?

You’d probably want clarity in billing and consistent billing practice. You can achieve these things by setting expectations early on and having regular, clear communications throughout the client relationship. Standardized billing practices and invoices will help you with this immensely.

If you’re using an hourly fee arrangement, the lawyers at your firm should track and enter their time frequently (and ideally daily). As you know, technology can help with this, and it can also help your lawyers draft templates with descriptions of tasks completed and billed.

We also recommend getting bills and reminders of payments out quickly. The sticker shock of a larger bill that accumulates over time may lead to misunderstandings. Regular invoices can keep client billing angst low and help your firm’s profitability.

How can legal billing software help automate this process?

Legal billing software can save your lawyers and firm hours upon hours by automating routine tasks. The right electronic billing software will help your firm generate and approve draft bills by using your firm’s preferred template and including all the information necessary to get paid.

Legal billing software can also send automated reminders to clients when payment is due (and overdue) and can generate financial reports regarding paydays to help you better visualize the big picture and stay up to date on cash flow.

Your clients can access a secure billing portal any time they need to view or pay bills, relieving strain on your law firm. The right legal billing software is also customizable to the unique needs of your firm, its various practice areas and billing rates, and clients, and can take into consideration your fee arrangement.

As you’re considering potential legal billing platforms, it’s important to choose electronic billing software that meets your firm’s needs. This includes steps involved to get onboarded and what data should be imported into your new legal billing software.

Ultimately, the right legal billing software is the one that will help your law firm automate your billing process, be easy to use, and save you time.

What is law firm accounting?

Most law firm leaders do not enter the legal industry with an accounting background, but a basic understanding is important to inform decisions about billing processes, the acceptance of payments, and trust accounting.

Simply put, you need to know about your law firm’s financial performance. But, you also need to be able to meet your legal, regulatory, and ethical obligations, such as preparing your federal and state income tax returns and managing your clients’ money. Accounting practices enable you to prepare financial statements, capture expenses, and create budgets and forecasts. The better you understand your law firm’s finances, the easier it will be to make smart decisions for your business and avoid legal and ethical headaches.

A lot goes into navigating the world of law firm accounting. Let’s explore some of those vital components:

Choosing the Right Bank

The wrong bank could create financial complications for your firm and result in serious legal problems.

When choosing a bank, consider the following:

Law firms typically need a business checking account for the management of general business revenue, a savings account to set aside money for taxes or emergencies, and an IOLTA account for holding client funds in trust.

Some law firms also choose to open a money market account to take advantage of a higher interest-earning rate, as well as a business credit card for strategic practice growth.

The Intricacies of Trust Accounting

For law firms that hold client funds in trust, the IOLTA trust account comes with its own set of detailed accounting rules and risks. Noncompliance can result in severe penalties, so it is important to understand the complexities of trust accounting.

With so many different rules in place, it can be challenging to stay on top of all of them. Even still, some mistakes show up more often than others, with the most common stemming from these IOLTA rules:

Tax Obligations

As businesses, law firms must stay on top of their federal, state, and local tax obligations. The specifics vary based on the type of practice, but most firms have a responsibility to pay the following types of taxes:

This is not an exhaustive list and firms may have a variety of additional tax obligations. As such, firms need a tax professional in their corner to help them navigate these vital responsibilities. For firms that do not have an accountant on staff, a contracted Certified Public Accountant (CPA) can offer valuable guidance for limiting tax liability.


Legal time tracking is not an easy task, so law firm payroll poses challenges that do not exist within other industries. Firm members may have varied pay structures, which requires a payroll process that offers flexibility.

Payroll accounting includes components such as:

The rise in outsourced legal work adds another layer to payroll duties. Law firms should carefully categorize employees and independent contractors for taxation purposes.

Payment Processing and Collections

Once the invoices have been sent out, law firms need processes in place to actually receive payments and manage collections. After all, there is nothing to manage if revenue is not going into the firm!

While most firms still accept cash and checks as payments from clients, online payment methods have become more common within the legal environment. This requires having a system in place to accept these payments, and the choice of provider could mean the difference between accounting success and failure.


Invoicing is arguably the most important part of law firm accounting, as it is the mechanism by which firms bill for the legal services they provide. Improper invoicing can have many negative consequences, including unbilled tasks, sporadic billing, and unpaid invoices.

Law firms can choose an independent legal billing system to handle invoicing tasks, but the most streamlined option incorporates legal billing into a legal practice management system. With these platforms, firms benefit from advantages such as simplified approval processes, tracked invoice changes, and the ability to process numerous types of fee arrangements.

Some legal practice management software options include extensive data reporting capabilities so firm leaders can quickly access financial reports with just a few clicks of the mouse.

Should my legal practice management software include accounting features?

There’s no doubt that your legal practice management software should include accounting features within the larger platform. In fact, this is one of the most common reasons that law firms choose to implement cloud-based software.

Legal professionals spend time tracking billables and nonbillables. Management spends time reviewing revenue statements, budgets, pricing, and law firm expenses. Billing administrators spend time generating invoices and following up on delinquent accounts. By having legal practice management software that includes both billing and accounting features, you can streamline some of the most time-intensive, manual processes at your law practice. This software also lets management review billing and accounting data within the larger context of other law firm metrics.

Legal practice management software without any billing or accounting features leaves a gaping hole that management usually needs to fill with multiple platforms. This can confuse the data and your employees, and it typically creates more work for everyone. Plus, it usually results in an added expense for the law firm.

What are the most important features that law firm accounting software should have?

As you’ve probably gained from this post, law firm accounting can be challenging. But, it doesn’t have to be another headache on top of the stresses of your law practice.

The first step is to put down the pencil and paper - or even the Excel spreadsheet. If you want to get really serious about your accounting, you need to ditch small business accounting platforms, like QuickBooks that aren’t designed specifically to meet small law firms’ needs.

You need a legal practice management platform that includes full billing and accounting capabilities, making sure that you’re able to track every last penny and satisfy your ethical obligations to your clients. To find a tool that’s able to resolve your biggest accounting challenges and meet your firm’s needs, look for a platform that is equipped with the following accounting features:

Organize the chart of accounts and trust accounting

Given the number of financial accounts in a law firm’s financial ledger and the potential number of firm clients, it can be daunting to track them all in a standard bookkeeping system. Law firms must track assets, retainers, receivables, revenue, equity, expenses, and much more. A centralized repository that puts all of your bank accounts, operating accounts, and related information at your fingertips in real-time is essential.

Every lawyer knows that closely managing client trust accounts is an integral part of ethical (and legal) law firm billing. Billing and accounting software must be able to effectively manage lawyer trust accounts that hold clients’ funds before they are earned. This includes tracking interest-bearing accounts (IOLTA) and three-way reconciliation with the asset sheet, trust asset account, and trust liability account.

Facilitate timekeeping and billable hours

Legal accounting and billing software must be able to accurately track billable hours and support LEDES e-billing practices. It’s even better if the software has features to automatically detect timekeepers’ billable hours, such as the ability to capture time for appointments or communications sent through the same platform.

Support flexible fee arrangements

Some law offices use flexible fee arrangements, depending on the client or type of case. To be effective, the accounting software should recognize various fee arrangements like fixed fees, contingent fees, and subscription-based payments.

Generate automatic invoices and payment collection

Generating invoices and collecting payments is one of the most time-consuming parts of legal billing. Software that can automate the billing process by automating and sending invoices to clients, facilitate edits and changes to bills directly within the system, and collect credit card payments through a secure system will cut down on the time that administrative staff spends on billing.

Prepare Billing and Accounting Reports

It’s important for billing and accounting software to synthesize data and generate reports that give law firm management insights into the efficacy of billing procedures. These reports may include billable and nonbillable hours per timekeeper, client, or case as well as measures of attorney profitability.

Track expenses

Law firm billing and accounting are important because they tie directly to the financial success of the business. Legal practice management software must be able to track metrics related to big-picture finances like expenses, overhead, and cash flow so that management can pinpoint areas of success and opportunities for improvement.

Provide customizable features

Perhaps the most important feature of legal billing software is that it can be customized to support your unique business goals. For example, a legal billing solution might offer add-ons like billing templates, an app, a customizable dashboard to track relevant billing and accounting metrics, or the ability to create one-of-a-kind financial reports.

Features like these can make the difference between an inefficient accounting process that’s prone to errors and bookkeeping and accounting systems that run like clockwork, enabling you to meet your ethical obligations and client trust account reporting requirements.


Mastering law firm accounting is no easy feat. However, the right legal accounting software can help you streamline these critical accounting functions.

If you keep the above components in mind and put them into practice, you’ll be well on your way to navigating your firm’s finances successfully and without penalty.