As we all know, the practice of law is challenging and negative case outcomes can sway clients to not pay legal service invoices, especially in uncertain times. Therefore, more firms are offering clients cost-effective alternative fee agreements, payment plans, evergreen retainer options, and the option to have client money held in trust before representation can begin.
With legal trends rapidly shifting under the new normal, by making simple modifications to the client intake processes and day-to-day business operations, your law firm will boost profits in 2021!
By offering your clients alternative fee options, your law firm can secure positive cash-flow and lessen the financial risk of having to write-off aged A/R balances on invoices for legal services rendered. Simple changes in business operations will guarantee positive outcomes.
As your law firm revamps its business model moving forward to 2021, your focus will be on retaining more clients, handling alternative fee options, and managing client trust funds efficiently.
As you begin to implement changes to retention practices, it is important to incorporate the Terms of Representation in clear and concise language in your law firm’s Attorney-Client Fee Agreement.
First, let us begin by discussing retainers and why they are important.
What is a Retainer?
A retainer is a generic term that can mean a few things:
As we know, client funds must be kept in a Trust (IOLTA) Account, which is used as a guarantee and upfront deposit to pay legal service invoices. Depending on the Attorney-Client Fee Agreement, client funds used to pay legal invoices must be replenished as funds are depleted, or client funds are held in trust and used to pay the final invoice.
There are a few exceptions when working with a client on a Flat Fee basis, wherein a Flat Fee is considered earned and can be deposited directly into a General Account. However, if the retainer paid includes monies for upcoming costs, that portion of the retainer must be deposited and retained in the Trust Account to pay future costs.
A best practice here is not to deposit client funds in the General Account as that is the beginning of inaccurate Trust Account record keeping and is punishable by the State Bar.
Difference Between Trust (IOLTA) Account and General Operating Account
What is a Trust (IOLTA) Account?
What are Trust Account Funds?
So now that we have covered the basics of what a Trust Account is and is not, and the reasons law firms must have a separate Trust Account, let us look at how to work with them to ensure accuracy and compliance with your law firm’s State Bar requirements.
First and foremost, it is important to know what the money being paid to the law firm is for: trust funds replenishment, settlement funds, cost advances or A/R invoice balance? You also need to know where the money is being deposited – Trust Account or General Account?
Often the accounting staff must seek out the retaining attorney when unidentified checks or electronic payments are made on a case in order to ensure where to deposit the funds. It is important that client trust funds do not get deposited into the General Account and commingled with the firm’s money.
When client trust money inadvertently gets deposited into the law firm’s General Account, this gives the law firm a false sense of financial security. Usually the error is found and resolved at the time of billing time or later, often leading to major financial problems. The client money that should have been in the Trust Account to pay legal invoices or costs-advanced for services related to the case has been spent elsewhere, most likely on law firm operating expenses.
In addition, getting a notice from the Federal Bar Association that your Trust (IOLTA) Account must be audited due to a complaint of mishandling can cause fear and lead to an attorney losing the privilege of practicing law.
There are ways of making sure your law firm does not fall victim to Trust (IOLTA) Account fund mishandling. Check out some of the simple steps you can take below.
One way is to consistently monitor work-in-process (WIP) and upcoming costs-advanced when clients have trust funds and are moving into either the discovery or trial phase. These phases of the case can easily lead to excessive fees and cause costs-advanced to become out of control. This is especially true when multiple attorneys are working on the case and no one is monitoring.
By reviewing WIP, outstanding fees, costs, and balances in Client Trust Accounts on a regular basis using modern dashboards, your law firm is less likely to deplete client trust funds and/or go over budget on a case, which means invoices will be paid and A/R will be current. Here are some ways you can stay on top of your firm’s business:
Monitor Work-in-Progress for Fees and Costs
Request Replenishment of Client Trust Funds Immediately When Balance is Low
As your firm begins to transform business operations and move to the new trend of alternative fee agreements and requiring client deposits that must be held in trust, below are some closing tips and tricks to avoid Trust (IOLTA) Account mishandling:
What not to do with your Client Trust Account
What to do with your trust account
Thing to Remember