Managing a law practice is about much more than representing clients. One of the biggest challenges for law practitioners, especially true solos and small firms, is maintaining an accurate trust accounting system. Most of us didn’t receive much if any training before beginning our legal careers on topics like timekeeping, billing, or three-way trust account reconciliation. Yet these tasks are critical to keeping a practice running smoothly and maintaining compliance with your ethical obligations.
Something Is Not Always Better Than Nothing
The old adage “something is better than nothing” should not apply to trust accounting. That approach sets the standard far too low. While you could argue it is better than nothing to use a manual trust accounting system, such as handwritten ledgers or Excel spreadsheets, that method still leaves significant room for error. It is arguably better to use a general accounting software program than a manual system, but law practitioners often struggle with those programs for a reason: they are not built to manage trust accounts. You must teach the program using a series of special steps many legal professionals don’t understand, otherwise you risk improper setup and management.
The Challenges of Trust Accounting
Law practitioners face several challenges when it comes to trust accounting because their accounting systems are often inefficient. Here are some common examples:
- Failure to track individual client funds: Practitioners must know each individual client’s exact balance in the trust account; otherwise they risk using other clients’ money or overdrafting the account.
- Commingling of funds: This occurs when legal practitioners accidentally deposit client money into the wrong account or fail to move earned fees from the trust account to the operating account in a timely manner.
- Mathematical errors: Trying to manually track client ledgers in Excel or on paper invites mistakes, especially when balancing multiple client matters at once.
- Three-way reconciliation confusion: Practitioners should reconcile client ledgers, the trust account ledger, and the trust account bank statement each month. Many don’t fully understand the process or delay it, leading to errors that compound over time.
- Uncleared checks or deposits: Outstanding items that aren’t tracked carefully can make your reconciliations appear off balance, creating unnecessary stress and often making it impossible to track down unclaimed funds if not addressed properly.
Why Trust Accounting Software Matters
Ethics rules require law practitioners to follow strict guidelines in order to safeguard client funds and manage their lawyer trust accounts. Trust accounting software simplifies the process, can give you the confidence that you are meeting your ethical obligations, and reduces your risk. These programs are designed for legal professionals with the main goal of making trust accounting compliance simpler. Modern trust accounting software allows you to track time, generate invoices, accept payments, and even complete trust account reconciliations with just a few clicks. Instead of juggling spreadsheets or relying on memory, you can work within a single platform to stay compliant.
Options for Law Practitioners
Law practitioners have many software tools available to help with billing and trust accounting. One example is Smokeball Bill, which, through a partnership with the Oregon State Bar (OSB), is available at no cost to all OSB licensees. Smokeball is a cloud-based legal billing and trust accounting software program. Smokeball Bill is built for small and mid-size firms, with features including matter-based time and expense tracking, invoicing, trust accounting and reporting, accounts receivable, and a LawPay integration to allow for online payments. While Oregon practitioners are not required to use this program, it is a good option for firms who are looking for a trust accounting program but who also want to keep their costs down.
Ultimately, trust accounting is one aspect of practice where cutting corners is simply too risky. Trust accounting software can save time, reduce stress, help you avoid ethical pitfalls, and keep you out of hot water. Investing in a reliable system ensures you can focus on serving your clients while knowing your trust account is managed accurately. Call a practice management attorney at 503.639.6911 if you have any questions about trust accounting, including trust accounting software options.
