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Legal Bookkeeping CTA and IOLTA | Supporting Strategies


Legal Bookkeeping: Tips for Maintaining Client Trust Accounts


Law firms require specialized bookkeeping services to handle their trust and IOLTA accounts. Learn how professional legal bookkeeping can help you stay in compliance.

Successful law firms know the importance of maintaining compliance with client trust and IOLTA accounts. Staying up to date on legal bookkeeping and documentation can be difficult in a busy law firm. In fact, the more successful a firm is — i.e., the more cases it handles — the greater the likelihood of inadvertently mishandling a client's trust account. And the consequences can be severe, including possible disbarment.

Here's how to ensure that your client trust accounts are handled correctly — and efficiently.

Client Trust Accounts and IOLTA: A Background
Due to the protracted nature of legal work, trust accounts are a practical way for clients to pay as they go. In simple terms, the client deposits funds in an account at the outset of a case as a retainer, and the lawyer withdraws the appropriate amount from the account each time services are rendered, following client approval. At the same time, interest on the lawyer's trust account (IOLTA) is used to fund various forms of civic legal aid. (Guidance on how earned interest is managed comes from each state's bar association.)

In short, lawyers may use funds in a trust account only for specific services rendered. They may not withdraw advance payment from trust accounts, nor can they pay operating expenses (e.g., salaries, rent or utilities) out of trust accounts. Also, they're not entitled to any interest from those accounts.

Sounds simple enough. But in a hectic law office, with attorneys juggling multiple cases while also trying to stay on top of operating expenses, lines can blur and mistakes can happen. According to The Balance Small Business, a "trust account mistake is the one most likely to end a legal career when it's committed by a lawyer, but the lawyer is still the one on the hook for repaying the funds even if it's committed by a paralegal or a bookkeeper." (Emphasis added.)

Law Firm Software and Reconciliations
Given the high stakes, it's clear that every law firm should enlist the support of a bookkeeping services provider with deep experience in working with trust accounts. In addition, firms should invest in software customized for use with trust accounts and integrate that software with their bookkeeping system. This will ease the process of reconciliation, linking the bookkeeping application with the firm's management software and its bank account activity. Once the system is set up properly, compliance with trust account requirements is essentially baked in.

Improve Efficiency and Cash Flow With Professional Legal Bookkeeping
The benefits of using outsourced bookkeeping services with experience in the legal world extend beyond airtight trust accounts. Professional-level bookkeeping expertise, combined with industry-specific software tools, can provide financial insight, reduce paperwork and improve cash flow by automatically issuing invoices as the trust account is depleted. A professional bookkeeper allows you to keep track of late invoices and follow up in a timely and consistent manner. Further, a professional bookkeeper improves efficiency by eliminating the need for back-office staff to enter the same data in different systems for case management and billing.

Modernizing your law firm's bookkeeping by establishing online systems and working with a professional bookkeeping and controller services company will not only keep you in compliance with client trust accounts and IOLTA, but also support your firm's success.

Read More Legal Bookkeeping Tips

At Supporting Strategies, our experienced, U.S.-based professionals use secure, best-of-breed technology and a proven process to provide a full suite of bookkeeping and controller services. Are you ready to learn how you can move your business forward? Contact Supporting Strategies today.

Marc Liebowitz


Marc Liebowitz

Managing Director Marc Liebowitz, Supporting Strategies | Princeton, NJ, provides bookkeeping and controller services to growing businesses.

Legal and Tax Disclaimer

This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.