Software for Trust Accounting

Vol. 3, No. 12

Megan Zavieh is a state bar defense attorney and general ethics counselor admitted to practice in California, New York, New Jersey, and Georgia. She runs a virtual law practice at zaviehlaw.com in which she represents attorneys facing ethics charges, counsels lawyers on issues of law practice, risk management, and early resolution of client conflicts, and speaks on ethics issues at seminars and webinars. Megan blogs at CaliforniaStateBarDefense.com and is a regular contributor on ethics topics at Lawyerist.com and AttorneyatWork.com. She currently serves on the Executive Committee of the Solo and Small Firm Section of the California State Bar.

 

Under the ethics rules of all states, keeping track of funds held in trust for clients is critical. Some states are moving toward random audits of trust accounts (see, for example, my discussion of California’s recent proposal), which makes it all the more important to ensure your accounting is just right. “Harmless” errors that would never have been the subject of a client complaint may become the basis of disciplinary actions when the bar sees them in a random audit.

Lawyers are ultimately responsible for their trust accounts, though they may use staff to help with the administration. Big firms typically have an administrative employee overseeing the trust account under the supervision of a senior partner, but in solo and small firm practices, the trust account (like many other administrative functions) often falls entirely on the shoulders of the attorney. To confront the challenge of ensuring strict compliance with the ethical rules while also performing the substantive legal work of the firm, there are software options available.

 

Billing and Timekeeping Software

There are many options available for billing and timekeeping software. Among them are MyCase, Clio, and Abacus. (For the sake of full disclosure, I use MyCase.) Within the software, there are trust accounting functions. Rather than operating like a check register in which you must manually record and keep track of deposits and withdrawals associated with each client, the timekeeping software keeps track of your trust account in a more user-friendly way. Receive a deposit from a client? Tell the software to record a deposit. Bill a client and pay it out of trust funds? When you complete the bill, just check the box that says to apply trust funds, and it will automatically record it and reduce the client’s balance held in trust. The ABA put together this handy chart in 2012 comparing more than a dozen timekeeping software options on seven criteria, so if you’re shopping for software, this is a great starting point.

Many timekeeping systems also have mobile apps for iPhone and Android, making it easy to keep up with your accounting when you’re on the go. For solos with post office boxes for mail, for example, if you pick up the mail and head straight to the bank with any deposits received, you can record them in the mobile app before deposit.

Perhaps the biggest advantage of using the timekeeping software as your trust accounting software is that you are going to be sending monthly bills anyway, so it does not require you to have another system in place in order to comply with ethics rules. Also, because the software is specifically designed for lawyers, it is already programmed to track the way we need it to.

 

Accounting Software

If using law-specific software is not particularly important to you, there are general accounting software options as well.

QuickBooks is by far the most popular option for small business, and it specifically caters to law firms as well. It has trust accounting and invoicing functions. If you don’t want to shop around, you will be in good company if you just go with QuickBooks. Millions of other small businesses are using it too.

If you want to check out alternatives, I recommend starting with Capterra’s article and review of QuickBooks alternatives. Now Capterra is not analyzing these QuickBooks alternatives from a lawyer’s perspective, so to get more insight into Capterra’s number one alternative to QuickBooks, a web-based platform called FreshBooks, there is a great analysis of the two products at Lawyerist.

 

Why Use Software?

It’s an oft-repeated refrain that lawyers are lawyers, not businesspeople. We are also (usually) not accountants. Despite being bookkeeping-challenged, the ethical rules require that we keep meticulous accounting records for funds we hold that do not belong to us. Using software designed to do it for us is a safeguard we can implement to assist in meeting our compliance obligations. Keep in mind, however, that blind reliance on software will not protect you from an ethics violation if you mishandle funds.

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