Every business is continually striving to improve efficiency, save time and money. Pay less and get more.
Law firms are no exception to this rule.
One way law firms and legal operations can save money is by looking at revamping, modernizing and optimizing their accounting operations.
By scrutinizing your accounting operations and leveraging the right software solution, you can achieve this goal and set the stage to scale your law practice.
In this article, we will look at:
- Generic legal accounting software
- Specific legal accounting software
- Trust account operations
- Legal-specific accounting capabilities
- Legal accounting software security
Should you buy a generic accounting software or a legal accounting software? What is the difference? Is it worth the additional cost? How should I compare a generic application to a legal-specific application?
Let’s get right into it.
1- Generic legal accounting software
A generic accounting software is one designed to perform common accounting operations applicable to a generic business with common use cases.
Pretty much, a regular business like a boutique, restaurant, retail store, consulting company. Not necessarily a law firm.
Generic accounting software packages, like QuickBooks, are not designed specifically to take into consideration a law firm’s specific needs and the relevant accounting rules established by your local law society.
Granted, there are great generic software products out there.
So what should you do?
Here is what you need to consider if you take this route.
Considering that you need to be compliant with the accounting rules of your law society, you must evaluate how extensively the generic software solution must be customized and tweaked to fit your legal accounting needs.
Don’t forget, the more you customize, the more expensive it will be for you in the long run. Why?
First, you may need to pay to have the software customized either by your software vendor, software developers or a professional services firm.
Second, you will need to ensure that your customizations remain operational every time there is a software update, upgrade or release of a new major version.
The support and maintenance of your customizations can be costly and result in costly accounting errors.
So before you buy a generic software, you should make sure you assess the extent of modifications and customizations you will require to be efficient.
Do we recommend buying generic software solutions to operate a law firm? No, unless you know exactly what you are doing and you have the ability to ensure your software can adhere to the legal accounting rules on an ongoing basis.
2- Specific legal accounting software
Specific legal accounting software programs are accounting tools designed specifically, from ground up, for lawyers, law firms and legal departments.
They are typically vetted by different law societies and comply with the legal accounting rules.
When you purchase a legal-specific accounting software, you are ready to go, out-of-the-box!
Now you’re talking.
You may pay a higher price tag but the additional cost may be well worth it.
In the outset, you will save time and money in customizing the application.
On an ongoing basis, you will not need to worry about keeping up with the legal accounting rules to ensure your customizations are still relevant.
The software vendor is in the business of providing you with a compliant legal accounting software, so you’ll pay a premium for that. Premium for peace of mind.
A superior software product designed for the needs of a law firm will give you more benefits than just performing accounting operations.
To read more about what to expect from an accounting software for law firms, we have a great article that addresses that.
Your accounting operations are crucial for the compliance with your law society obligations. They are strategic as you can increase your profitability by cutting down unwanted administrative tasks and achieve significantly higher efficiencies.
As a lawyer talking to a lawyer, there is no doubt that leveraging a legal accounting software is the way to go.
3- Trust account operations
When dealing with your trust account, you must take extra, extra, extra precautions.
We all know that our professional responsibility can be engaged for errors creeping into our trust accounting. That can lead to disastrous outcomes. Let’s not even talk about that…
So what do you need to look out for when dealing with your trust account?
Well, it’s pretty straightforward.
Your accounting software should be able to:
- Give you trust account reports with all relevant information required for compliance purposes
- Handle the accounting for the interest paid on your trust account
- Provide you with safeguards against overdrafts to your client’s trust account
- Allow you to automatically transfer funds from your trust account to general commercial account on billing
You will be happy to use a legal accounting software. Most of them come with these features as standard. No customizations, no problems with your compliance, no time loss.
Check, check and check.
A dedicated legal accounting software will provide you with built in protections so you don’t have to worry about them.
On the other hand, a generic software may not provide you with these features out-of-the-box. You will be required to manually create reports and figure out how to make your software work as you need it.
In the end, you may be able get to the end result needed but you will have spent more time and money to get there.
At the end of the day, if you are going to buy a software product, aren’t you doing that to reduce your administrative tasks, save money and time?
4- Legal-specific accounting capabilities
What you need from your software application is the capability of handling different billing arrangements and scenarios applicable to law firms.
For instance, your firm may need to deal with the following scenarios:
- Hourly billing
- Flat fee billing
- Contingency billing
- Fees split between your client and a third party
- Consolidated invoice for a portfolio of matters handled
- Customized invoice appearance per client
- Electronic billing and in specific formats
You want your software to handle these scenarios.
On top of that, you want to ensure you get the following capabilities:
- Ability to allocate client payments to billing attorney, responsible attorney or area of practice
- Ability to account for a special compensation for new clients brought by a lawyer
- Manage a lawyer’s productivity targets in terms of billable hours and collection rate
- Manage billable and non-billable disbursements and expenses
- Provide details on work in progress
With the right software, you will have all of the above considerations handled, in most cases, out-of-the-box.
So think about your legal accounting needs and make sure that you select a software solution that actually brings you value and drives efficiency and scalability.
Don’t just focus on the price tag, that can be quite deceiving for a law firm or legal operation.
5- Legal accounting software security
In selecting your ideal legal accounting software, you should consider the security features offered by the software.
There is no exception here. Any software that you acquire must provide you with rigorous security features.
Here is a short list of questions you may want to ask your vendor:
- Can I control the access to the law firm’s client accounts?
- Can I designate a specific person authorized to submit invoices to the client?
- Can I control and limit access to the law firm’s general ledger?
- Can I control view access to a law firm client’s billing rates?
- Will the application allow for remote data entry capabilities?
- Can mobile devices access the platform in a secure way?
On the security side, a generic accounting software can provide you with a robust feature-set that can be comparable to that of a legal accounting software.
Credible software vendors invest significant sums in ensuring that they have implemented the latest security best practices baked into their software product. This is crucial. A security breach can tarnish your law firm’s reputation and that of the vendor.
With respect to security, from our perspective, a generic accounting software and a legal-specific accounting software are comparable.
So there you have it.
When we compare a legal-specific accounting software to a generic accounting software, the clear verdict is that a law firm should consider a legal accounting software.
We’ve looked at the capabilities of a generic software with that of a legal software with respect to:
- Trust account operations, reporting and compliance
- Billing, invoicing and expense tracking
- Software security, access monitoring and controls
Based on this, our recommendation is that a lawyer, law firm or legal department should consider primarily adopting a legal accounting software solution.
If you are interested in a generic solution, it may potentially work out just fine.
We strongly recommend that you consider the following:
- Make sure you understand your law society’s accounting regulations and compliance requirements
- How extensively will the software need to be customized to meet your needs?
- How much will it cost you to pay in support and maintenance on the customizations to start using the application and on a yearly basis?
- If you customize your software, will the use of the application be user-friendly to give you the expected efficiencies?
If you considered the above and you are still comfortable with going with a generic software, then go with what suits you best.
In most cases though, you may not see material benefits in going with a plain vanilla accounting software.
We hope that this article helped you in assessing the main differences between a generic accounting software and a legal accounting software.
What system are you using? Did you ever have to go through a customization process?