Accounting for a solicitor’s firm isn’t as straightforward as most would think. Although you’ll have to carry out the general accounting processes such as payroll and corporate accounting, things can get a bit more complicated when you have to consider things like fee advances or client retainers.

The best way to overcome a challenge is by understanding it. This article will explain the top accounting problems for solicitors.


Client trust fund accounting

Before carrying out work for a client, it’s more than likely you’ll take a deposit, or a retainer fee, from them for your services. Your firm will keep these in a trust account.

Storing any money should always be done carefully, so having a separate account for retainers is essential. 

If you put all of your clients’ retainer fees in one account, it may cause you to lose track of each person’s payment. Meanwhile, if you keep them in one of your firm’s accounts, you risk accidentally using their retainer to pay for your business expenditures. 

You can avoid this by using specialist accounting software made for trusts to help you track and manage retainers in the account.


Logging billable time

In order to keep your records accurate and reflective of the work your firm does, you need to understand the best practices for logging billable time with clients.

The best way to keep track of your time and expenses is to invoice clients using cloud accounting software. By doing this, your invoices will integrate into your billing system and provide you with real-time updates on your work and payments.

Also, by integrating your billing with your accounts, you’re less likely to make any mistakes from inputting the information twice. Your books will be more accurate as a result, and you won’t end up underpaying or overpaying HMRC when the time comes for you to prepare your tax returns.


How to account for case costs

Case costs can vary wildly depending on the length and density of the case. This is why it can be a challenge when a client wants to pay in advance of their case being active. 

If you do receive an advance payment, this must be handled in a way that complies with the Solicitors Regulation Authority (SRA) rules. Any firm which accepts an advance payment from a client will legally have to store it in a separate account, away from the money of the firm itself.

Once the case is complete, you’ll have to send a final bill to your client. After the payment is settled, the money can then be deposited in the firm’s account. You won’t be able to include that money in your profit or loss while the case is still in progress.

If you were to class this money as usable income, it would disrupt your cashflow and create difficulties when reporting your finances in your records or tax return.


We can help

Working as a solicitor, you’ll go up against your fair share of challenges, but you can mitigate your accounting issues by getting in touch with us. Coveney Nicholls specialises in accounting for solicitors, so we know what solutions to bring to the table.

Contact us today to find out more about our specialist services.