How to Keep Your Practice’s Balances In Balance
Maintaining a law firm’s accounts is more complicated than balancing a checkbook. A typical practice needs to monitor not just a single account but four critical balances: unbilled, unpaid, operating retainer and trust retainer.
The unbilled balance is the amount entered into the business’s records but not yet sent to a client. When someone in the practice works on a case, that person fills out a time card in the attorney time and billing software and the amount becomes part of the unbilled balance. This is also true of any expenses such as court fees or copying costs that are added to the matter. At this point your office knows the amounts but the clients don’t.
Once invoices are sent to clients, the amounts billed transfer from the unbilled balance to the unpaid balance. Anyone looking at this figure in the legal billing and accounting software knows the client has been notified of the obligation and the account is waiting on payment. Although the next step in the process–payment–is up to the client, the practice needs to monitor the unpaid amount and send reminders if the balance is more than 30 days old.
The two balances above are standard in any business but billing software for attorneys must track retainer balances as well. The operating retainer balance covers unpaid balances in the corresponding matter, allowing the office to cover appropriate costs immediately rather than waiting for client payment. The firm must monitor operating retainer balances and ask the client for additional funds to replenish the retainer if it falls below a certain critical level.
Trust retainer balances work in the same way as operating retainers, but trust accounts fall under more restrictive laws than other accounts. In particular, if a trust retainer falls to zero the firm must continue to make payments from the trust account even if the money must be taken from the practice’s own funds. Therefore it is especially important for the business’s financial stability to monitor trust retainers with law billing software to keep the balances positive.
These four balances are interdependent. A successful practice must not only monitor each amount individually but also must be able to see how the amounts relate to each other. Don’t leave your practice’s finances to chance. Use specialized law practice management software to supervise and manage your office’s financial future. To try it click here.