Every law firm must keep Advanced Client Costs as their top priority when dealing with attorney clients. Legal bookkeepers working for law firms are required to have strategies and plans to maintain advanced client costs effectively and proficiently.
Apart from staying compliant with standard SRA rules, advanced client costs are about client satisfaction. With the right plans and strategies, law firms can win over their valuable clients while keeping them happy. In this article, we discuss what advanced client costs are and how to do the proper client accounting for them.
What are Advanced Client Costs?
Advanced Clients Costs are costs or expenses that are made by law firms on behalf of the clients. These are made when the law firms represent the clients legally. Examples can include an array of different types of expenses – transportation costs, court fees, filing fees etc. These expenses are expected to be reimbursed by the clients. Think of Advanced Client Costs as “loans” provided to the clients.
Effective and Accurate Advanced Client Costs Management
Advanced Client Costs are counted as “assets” and not “expenses”. This categorization is crucial in keeping up with proper tax guidelines and avoiding complications when law firms are required to clear taxes. Law firms must adhere to this specific form of categorization to reflect the accurate status of their clients’ finances.
- Create a Separate Asset Account to record Advanced Client Costs in the respective legal practice management software used by a law firm’s bookkeeper. The Separate Asset Account will be used to track any and all expenses made on behalf of the clients. This helps to differentiate between regular expenses and client-reimbursable expenses.
- Send billable invoices of the Advanced Client Costs from time to time to the client to keep them updated on their expenses. Charging them periodically will keep the clients aware of their expenses and prepared for reimbursement, in contrast to charging them a large amount at the end.
- Advanced Client Cost accounts must be reconciled regularly. Expenses that the law firms have little expectation of recouping must be recorded. This helps to keep the entries accurate and updated.
Points to Remember During Advanced Client Costs Accounting
- Advanced Client Costs should not be recorded as regular billable expenses.
Advanced Client Costs entered as regular billing expenses may result in quarterly financial reports showing higher expenses on the law firm than necessary. It can also result in inconsistency in the accounting regarding the actual amount clients owe to law firms.
- Advanced Client Costs are not incomes for law firms.
Recording Advanced Client Costs as income will result in higher tax liabilities since there is a clear distinction between income and expense reimbursements.
Conclusion
Recording Advanced Client Costs separately and accurately is crucial in legal bookkeeping. With the help of a credible legal bookkeeper, Advanced Client Costs can be properly managed without hassle. And legal practice management software such as QuickBooks Online and LEAP help keep the process clean and simple.
