Keeping track of trust funds (also called as IOLTA accounts) is not an easy task for law firms. It is a standard practice for law firms to collect advance client payments (retainers) as trust funds and apply them against outstanding invoices. In law practice, trust account management is a sensitive ordeal because any mishandling of client funds can become a question of ethical conduct. Managing trust funds involve certain accounting principles and practices to handle them carefully. The attorneys or law firms should have a better understanding of trust accounts to maintain the transactions properly.
Law firms work out different alternatives to keep this process as simple as possible. Some follow traditional bookkeeping methods while others use specific software for trust accounting. However, handling the funds can get tricky if it is not integrated with the billing process. The law firms have to reconcile trust accounts of multiple clients every month and also keep it compliant with billing.
How Do Retainer Funds Work?
Retainer fund is the advance paid by the client where the amount is held as fiduciary account for that client. It is separate from law firm’s operating account, and the funds can be earned only through proper service. Law firms that handle multiple retainer accounts have to be very precise in tracking the retainer balances and applying them against specific outstanding invoices. Many times they make mistakes and end up using funds of another client or even on another case for the same client while switching back and forth between billing and trust management process.
Billing in Compliance With Trust Accounting
Linking billing/timekeeping software with trust funds keeps the financial process in balance without the need for double entries or manual transaction. It becomes easy to check on retainer balances and create invoices out of the trust account as needed. Keeping billing in sync also help in avoiding common mistakes while exchanging funds with trust accounts. Law firms can prevent situations like the mismatch between billing & trust transactions, over-drafting the trust funds, mistake of billing one client with another retainer account, etc.
Choosing Legal Billing Software With Integrated Client Trust Accounting
Some law firms use separate systems for their legal billing and trust management, which means the transactions need to be entered twice across both the systems. The lack of integration between two processes makes it difficult to have a complete view of law practice finances. Instead, a legal specific software including billing and trust accounting allows a flow of information between two processes. It facilitates to view different aspects of financial data in one system such as unbilled balances for clients, an amount that is pending for payment, trust retainer balances, etc. Not only it provides synergy between billing & trust accounting but also facilitates automatic payment of invoices from retailers.