Tips for maintaining law firm financial records

January 23, 2014

Internet MoneyIn this series’ previous post, we covered client file maintenance and its challenges in the age of digital information storage.

Today, we’ll be discussing record maintenance for your firm in the more general sense, which also has its share of challenges thanks to electronic storage technologies, yet has also become markedly more streamlined because of the same technologies.

The “records” that I refer to here are those relating to the daily operations of your law firm, such as invoices and payments received, costs incurred, documents and correspondences both sent and received, along with other communications.

There are a number of reasons for maintaining accurate and detailed records such as these, one of the most important of which is that rules of professional ethics almost always require as much.  But such diligent recordkeeping also makes your life easier in the end, and that should be reason in itself.

First up this week is one of the type of records most heavily regulated by professional ethics rules: invoicing and billable hours.  If that weren’t reason enough to be diligent in maintaining these kinds of records, then maybe the fact that the more organized you are in this area of recordkeeping, the easier it will be for you to get paid.

As I’ve stated previously, it’s very important to record your billable hours as you accrue them.  I went into greater detail on the importance of simple time-tracking in that earlier post, but here’s the short version:

Find a way to track your billable hours that is fast, easy, and leaves your records well-organized.  You may have a dedicated time-keeping application or service for this, or you may maintain your own invoices in the form of individual spreadsheets.  However you choose to track your hours, make sure that you are able to do it in such a manner that you accurately record the number of hours and include a detailed description of what you did during the billed hours.

For example, let’s say that you bill a client for a telephone call.  Whenever possible, don’t just record the time as a “phone call with client.”  Add in additional details about what you spoke about.  They need not be as detailed as the notes you dedicate to your communications (which we’ll get into later), but they should be sufficient so that you’re able to quickly recall what you discussed during that conversation if need be.

Of course, adding this kind of information into an invoice creates the potential of inadvertently revealing confidential client information, so invoices containing such information should be treated with the same level of protection that you would the rest of your clients’ confidential information.

S034845_240x400True, this may require some additional effort on your part, but it will be well worth it in the end, since it greatly reduces the possibility of disputes with your client over bills, which, in the end, will lead to better client relationships, more referrals, and, of course, getting paid faster.

Of course, no examination of financial recordkeeping would be complete without an emphasis on the importance of maintaining thorough records on your client trust account.  This is, once again, another area heavily regulated by ethics rules.  However, you are going to want to keep accurate records for your own sake, as well.

Your records should be sufficient so that you know exactly how much money in your trust account belongs to which client at any given time, and that you know exactly how much of every deposit and withdrawal from the account is attributable to which client and which invoice.  Your records should reflect any and all outstanding debits and deposits to the account that may not yet be reflected in the account balance, and, once again, which client these are attributable to.

Aside from being compliant with your respective ethical rules, keeping such detailed records will also significantly reduce the possibility of losing track of your client’s money.

Clearly, such a possibility could have severe disciplinary ramifications, but even if the professional ethics board never discovers your error, you still have to contend with the client whose money you “misplaced” due to an accounting error.  Even if the error turned out to be harmless in the end, you may still damage your relationships with your clients should they become aware of your blunder.

Even if nothing in this parade of horribles comes to pass, it’s still far less work for you to continue to maintain accurate records on an ongoing basis than to have to spend numerous hours cleaning up your records after you (or, worse, a client) noticed an inconsistency in your financial records.

In the end, though, if nothing else has seemed motivation enough so far, perhaps this will: the better your firm’s financial records are maintained, the faster you will get paid.

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