All-In-One Solutions for Law Firms?

Caren Schwartz
Posted by Caren Schwartz on Jan 11, 2021 11:36:33 AM

Law firms have many options when it comes to billing and accounting. They may choose to use QuickBooks (Desktop or Online); they may choose to use a billing solution that integrates with QuickBooks; they may choose to use a billing solution and a separate accounting solution; or they may choose a solution that provides billing and accounting from a single vendor, possibly with practice management built-in as well. 

All these options — what’s right for your firm? There’s no single answer, but there are things to consider in making the best choice for your firm.  

The primary reason firms choose QuickBooks for billing and accounting is it is well-known. It is “easy” to find someone who knows QuickBooks. But this ease can be deceiving.  Although many bookkeepers and accountants know QuickBooks, they do not always know how to use it to meet a law firm’s needs, especially when it comes to hard costs and trust accounting.   

To comply with IRS rules, many law firms should be tracking hard costs on the balance sheet as a loan to the clients, not on the profit and loss statement. This means that you need to be able to track, by client, whether the client has reimbursed costs. If you write off all or part of a client’s balance, you must appropriately adjust the hard costs. If a client partially pays a bill, most law firms want the payment applied first to costs and then to fees. QuickBooks does not allow for control of payment allocation. It applies payments to costs and fees proportionately. This is the case for both allocation between fees and costs and allocation amongst timekeepers on the bill. 

Trust (IOLTA) accounting is especially critical for law firms. An error in the trust accounts at best can cost a lawyer time and energy in clean-up, and at worst may cost attorneys their licenses. The lawyer is ultimately responsible for the trust account and cannot delegate this. Bar associations require that an individual matters trust account must never be overdrawn and that there is no commingling of funds. This means that you cannot deposit trust funds into the operating account; nor can you use the funds of one client to cover any aspect of other clients’ expenditures for any period. You must track each matter’s balance in detail and make sure it matches the amount in the bank account. Some states mandate that clients receive regular reports of their trust activity as well.  

If you are using QuickBooks, this means that you, the lawyer, are responsible for making sure that no clients balance is overdrawn using a manual process. Legal billing and accounting software will prevent a client from having a negative balance, but QuickBooks does not have any built-in controls.  

QuickBooks also has limits in the billing area, especially for larger firms. If your state requires you to show all trust details with the bill and you are using QuickBooks for billing, this requires separate reporting that must then be collated with the bill. Other billing limitations include managing rate structures across multiple timekeepers; showing the specific timekeeper on the bills; and full batch billing capability, including draft bills.  

If you decide that QuickBooks by itself is not right for you, you can then take two approaches – use QuickBooks for your accounting but another solution for billing or use another program for billing and accounting. 

If you want to continue using QuickBooks for accounting, then you can either choose one of the many billing applications that integrate with QuickBooks or you can choose double entryDouble entry provides some checks and balances, but it also provides more opportunities for errors. You need to spend time making sure all key numbers match in both systems, especially the trust account, since you will likely be doing your bank reconciliations in QuickBooks. You will also want to make sure that all client costs are entered into the billing system, so that you do not lose money.  

Choosing a solution that integrates with QuickBooks will eliminate double entry, but there are still concerns. First, there is the downside of two applications with different interfaces from two different vendors. While they may work together today, an upgrade to one application can impact another, or a change in the operating environment can cause an issue. The firm, or a paid consultant, may need to be the middleman in working with the vendors to resolve any issues.  

It is also important to be aware of what information is exchanged and how it flows between the . Do hard costs flow both ways or only one way? Does the flow match the firm’s process? Do payments come already applied to invoices? If so, how are the issues of partial payment allocation handled? Remember, another application cannot change the way that QuickBooks applies payments to invoices, so be sure you will have consistent data in both applications that agrees with your needs. 

The final option is to consider an all-in-one solution. There are several software solutions from other vendors, designed for law firms, that offer billing and accounting in a single package. Some of these solutions include practice management, and that should be a consideration in making a decision that is right for your firm. The billing and accounting features vary, but in all cases you have only one software application and interface to learn and a single source for support.  

Whether you choose QuickBooks, a hybrid or another vendor solution, you will want to look at the features, the reports offered, the way the application works, and support and training options when deciding which solution is best for your firm. You may also need to consider conversion of data from your current systems. Spend time first understanding your firm’s needs and then evaluating your options. The process is not simple or quick but making the right decision will save time and money in the long run. 

Topics: Technology