The popular view of running a law firm, as portrayed on TV and in the movies, pays little or no attention to legal accounting despite it’s importance. Indeed, such televisual works are ‘Courtroom Drama’s’, but it is the paperwork, communication, and general skilled organisation of the legal accounting which must run smoothly and seamlessly before any courtroom appearance can occur at all. In the past, before computers and software programs, such a system was highly complex, as it is today, but much of the time-consuming work (which has no margin for error) can be absorbed by trustworthy and reliable legal accounting software.
The importance as well as the difficulties associated with legal accounting are huge, no matter the size of the firm. There are tough rules on compliance which are essential for both the survival and the success of a law firm. Lawyers are highly scrutinised, and many compliance issues revolve around the businesses accounting, despite the individual firm’s expertise being in law rather than accounting. Similarly, accountants do not always understand complex legal issues, so automatically there is a cross-over point in knowledge, and any legal accounting software must bridge this gap if it is going to be adopted by a legal practice.
Legal accounting is much more than a process of watching money coming in and going out. To be not just successful, but at the front of the field, a law firm’s compliance with law practices must be steadfast and unwavering. It must grasp the intricacies of escrow accounting, client trust fund accounting, direct and indirect matter costs, and compliant three-way reconciliation. Legal practices should always use specialised legal accounting software rather than general purpose accounting software as this will not highlight legal compliance issues.
Most law firms use a double data entry system to reduce data entry errors, and practice management and business accounting are usually in two separate systems. Problems arise when the same data must be entered on both systems, which means every transaction must be entered or edited twice. If a law firm can keep all business accounting and practice management in one system, on one piece of software, and the data only needs to be entered once, errors can be reduced, as will be the time spent on data entry.
Reliable software should be able to allocate revenue receipts in the appropriate order, as well as indicating when invoices haven’t been fully paid. Many legal processes can be made easier with the correct legal accounting software.
For example, it is easy to forget company expenses when putting together the clients bill, and this risk can be eliminated by the software. These expenses can be quite significant and having a good understanding of the overheads will help clients run firms more efficiently. Income must always be tracked by practice area, and although firms may focus on an area, there may be a multitude to keep an eye on.
There may also be different ways a firm bills an individual client and good software will need to have the ability to differentiate. Once income has been tracked by the practice area or case type, it becomes simple to see which areas generate the most, and such data-driven information can help fuel further financial success for the business which can use that data for important future decisions.
The final point, and one which is less technical but arguably even more important than everything else, is how user-friendly the software is. As useful as it is to know the system provides audit-ready data, or that it doesn’t cost thousands of pounds, systems which are highly complex also increase the risk for error. Any piece of legal accounting software needs to possess the ability for the user to grasp complex issues through a simplistic interface. If the software is not user-friendly people will switch-off before getting familiar with it and it will not be adopted by law firms en-mass.