Common Bookkeeping Challenges that Law Firms Face

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Have we ever thought the bookkeeping challenges a small-scale law firm has to go through?

Well, the fact is that lawyers, in particular of small-scale law firms, have a lot on their plate—daily court cases, dealing with clients, networking, advertising, management—and their financials.

Ever wondered even for a fraction of a second why accounting is considered vital to law firms?

First and foremost is “Compliance”

In the legal world, “Compliance” is the key, and not to forget a law firm’s accounting is no different in its working style.

Handling everything one at a time often can be too much to handle. In fact, during various occasions, the bookkeeping procedures at law firms are not properly taken care of and often leads to serious complications.

These complications can arise as many of the law firms need to track the ledgers of the clients separately from each other, while still keeping all the trust funds collectively in a singular bank trust.

They simply don’t think on those terms as to how important it would be to maintain bookkeeping processes in order to develop their brand awareness and to ensure better client relationship.

Law firms can be negatively impacted by bookkeeping challenges. Moreover, legal accounting is a challenging task for many solo practitioners and small law firms.

Therefore, this is where sound practice management and strong accounting systems play a vital role.

Bookkeeping Challenges: Let’s Discuss!

Today’s legal billing is more complex.

Hence, it is very crucial to personalize your legal accounting services in order to satisfy the unique challenges your business confronts.

Let’s discuss what are the major challenges that most of the law firms with legal bookkeeping practices face:

Better Billing System

It is a fact that alternative fee provision can be a win-win situation for the law firm and the client. Clients like, predictable bills, and attorneys like an appropriate fee.

You can reduce the time between billing and getting paid with an integrated billing and accounting system that shows client-related checks and trust expenditures in one system.

This would erase accounting/billing settlement worries, cut data-entry duplication, and thereby reduces human errors made in the process.

Recognize Where the Money Came From

No doubt a lawyer’s job isn’t an easy one. But it becomes way too difficult when a lawyer decides to manage a firm.

Simply tracking income without realizing which practice areas it came from is really a major injustice to the firm.

How can one make decisions about the business of your firm without accurate data which would eventually lead to serious consequences that might even result in a loss of revenue?

Thus, when firms are able to track their income by case types, it enables the firms to spend its resources more efficiently.

Error and Fraud Concerns

The third most common bookkeeping management problem is the issue of error and fraud.

It is highly critical that a law firm’s billing and accounting systems are able to use matching sets of data and leads to no further billing complications.

Capturing Time and Expense

It is a common legal accounting pitfall which may lead to inefficient management of accounting work record.

Accurately making a record of the billable time is the first pillar to keeping in business.

“In fact, Seventy-two percent say spending too much time on administrative tasks instead of doing lawyering work is a challenge.”

Bookkeeping Challenges: Why it’s a Pain Point?

We all are aware of the fact that businesses cannot survive without accounting.

First of all, you won’t be able to know how your business is performing without knowing the health of your cash flow.

Sadly, in the past for many small businesses and law firms who have limited staff and resources, this can cause more problem than it fixes.

“One of the top prevailing challenges remains the fact that small-firm lawyers say only about half of their day (60 percent) is spent practicing law.”

Bookkeeping Challenges: How to Resolve?

The biggest common problems with bookkeeping are that most small law firms and solo practitioners would rather tackle the million other pending tasks that they need to finish than take the time to actually manage their books themselves.

Well, there are a few options that you can seek:

Using Time as a Discipline

There is one way through which law firms can now maintain their books and that is having a proper system with strong accounting controls.

It can be almost hard for most of the law firms to keep a daily track of their revenue simply due to the nature of their work.

Furthermore, bookkeeping can get complicated if dealt with a wide range of standard practices for law firms like court sessions, filing charges, etc.

Time is constant across all services that are usually provided by law firms.

And with the accordance with properly maintained records on times spent on each client will simply remove any doubt from your bookkeeping.

Detailed ledgers of time spent on each client will allow you to exactly calculate your profit, including returns yet to be calculated from your prospective clients.

Reconcile Often

The second crucial way law firms can ensure systematic financial accounting is to regularly resolve their accounts, instead of leaving it to the year’s end task.

Every cash flow, whether making or receiving a payment, should be identified and followed accordingly.

It’s quite obvious that your financial accounts demand discipline which means day to day updating and following up every payment.

Otherwise, if you leave your accounts untouched till the years it will end up resulting in a huge mess and time-consuming activity!

“Forty-five percent of firms say they have implemented technologies such as case/matter management, time and billing, and document drafting tools in the last two years”.

Bookkeeping Challenges: Why Should Your Law Firm Address Them

  • Small law firms are still struggling to address the major challenges they have been facing till date, such as trying to balance practicing law while running a small business and battling against much larger firms.

In a recent survey conducted by Thomson Reuters in 2019

It was found that while many small law firms are not taking steps to address challenges that stand in the way of growing their practices, this inertia is building new scope for firms that are willing to take action and stand out from their competitors.

  • At the same time, there are small law firms who are willing to take small steps such as investing in technology or rather focusing on client relationship can enjoy a “first mover” benefit over competitors in realizing greater efficiency and delivering greater value for clients.
And firms identified to focus on efficiency and increased investment in technology as being key drivers of improved performance.”

A Sign of the Future?

A huge shift is happening in every sector—Accountants and lawyers need to open their minds or be eaten up.

With the rise of digital transformation, blockchain, and cryptocurrencies. Now, almost all major big and small law firms are all over blockchain.

Basically, blockchain is essentially a technology framework that changes the way people exchange information.

What makes it so different, is the way information is stored compared to a traditional database, with every transaction, every data entry or deletion that happens being captured.

These are very positive developments from the perspective of data integrity and security, with data being permanent and not stored in one computer, but in thousands of computers around the world, preventing hackers from stealing and corrupting data.

While none of these cryptocurrencies can completely replace traditional currency right now, the trust and transparency created by blockchain are key factors that will lead to blockchain based technologies such as Bitcoin gaining popularity in different law firms.

Now the question arises, “What can accounting and law firms do to keep up with the rate of change?”

So, the answer is if you want to succeed, you have to understand the bigger picture.

You can no longer just be in your industry—at your core you can be a law firm or accounting firm, but you need to pivot towards becoming a technology company or you will be overrun.

This is just the tip of the iceberg.

And, I am sure that’s the future, but that it may take a while to arrive.


Perhaps you should be but there really is no need. It goes back to my comments at the start of this article. All industries change. If you prepare for change and embrace it, you will prosper – usually at the expense of those who do not.

So, are you ready for it?

If you have any query don’t hesitate to contact our Accounting Experts at +1-866-301-2307 (toll-free).

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