Please see some of the magazine articles on the topic of billing and bookkeeping which were published recently.
What is a 3-way reconciliation?
The components of a 3-way reconciliation are:
1. total of all client ledgers must equal;
2. the general ledger (checkbook register), which must equal;
3. the bank statement ending balance (plus or minus any outstanding deposits and checks)
It’s a Fact! A 3-way reconciliation must occur, at minimum, on a monthly basis.
What if I receive both earned fee (and/or reimbursement of costs advanced) and an advance fee deposit in one lump sum?
Funds belonging in part to a client or third party and in part to the lawyer must be deposited, intact, into the trust account. In this case, deposit the check into your client trust account and write yourself a check for the retainer fee portion as soon as the check clears and the money becomes available, leaving only the money for the expenses in the client trust account. Under these circumstances, it might be simpler to have the client write two checks; one for your non-refundable retainer and another for client expenses.
Any such earned fees and funds for reimbursement of costs or expenses must be withdrawn...
What is a Lawyer Trust Account?
Most money held by lawyers on behalf of clients or third parties is held in a trust account. Lawyers commonly hold two types of funds in their trust accounts:
1) Client payments for work the lawyer has not yet performed, and;
2) Money which may be owed to a third party (such as the Clerk of the Court; a medical provider; costs associated with a deposition; etc). Lawyers must safeguard these funds in a trust account at a financial institution.
These types of accounts are called IOLTA (Interest On Lawyers Trust Accounts).
Understanding all these Trust Account Rules is too confusing. Can’t I just use an Earned Upon Receipt fee agreement and not bother with the IOLTA account?
Yes, you could do that but the problem is the Costs Advanced during the course of the matter. The Earned Upon Receipt funds only cover fees. Each time the firm requires payment to a third party, you will need to contact your client, request they issue a separate check for the current cost (Clerk of the Court, process server, medical records request, etc.) then you would need to forward the client’s check to the third party…..whew. That will get tiresome very quickly – and make for a messy audit trail. Better to understand trust account rules and keep the bookkeeping as simple as possible.
Recommended Best Practice: Deposit funds to trust, disburse third party advances from the firm’s Operating account...