Setting up a basic process that actually can be run by a sole practitioner, the secretary of a small 2-3 lawyer office, and even by the bookkeeper for a 10-15 lawyer firm is simple.

Business starts with a bang! Receipts from the messenger services and copy shops are pouring in. You look at these receipts but they don't have any charges on them. They aren't ready to be paid. What do you do? Just wait for the bill to show up? How do you find the right place to keep them so you will be able to locate the receipts when the bill does come in? Just when you figure out how to keep track of these receipts and bills to be paid, another attorney shows up and wants to share the cost of a deposition with you. How do you tack that? A client is willing to pay for a high priced expert, but you don't want to be the bank. How do you handle billing the client before you pay the expert? And what about passing bills directly on to another party?

Let's Set up Your Task System

Supplies Needed:

1   A-Z accordion-style file box (no lid)
1   1-31 Day accordion-style file box (no lid)
1   January-December accordion-style file box (no lid)
2   File Backers per month, plus 1 backer for Trust
Checks. (2-prongs on top, manila)

The A-Z file box is designated as the Receipts Holding box. As all the receipts come in from your vendors on a daily basis, these receipts are filed alphabetically by the vendor name in this file box. As the bills come in through the mail, the receipts are pulled from this file box, the appropriate ones are pulled and attached to the bill, and the bill is now placed in the 1-31 Day box. Please note all receipts should be marked at the time they arrive with any client matter they should be charged to, and in larger firms the approving attorney should initial and date receipts prior to being filed.

The 1-31 Day file box is designated as the Accounts Payable box, or current month box. Whenever a bill comes in from a vendor, attach any receipts from the A-Z file box, check the due date of the bill and place the bill in the calendar slot a few days prior to it's due date to give yourself enough time to write the check and mail it.

When a bill is not due until next month, place the bill and ifs receipts, in the January December file box, in the appropriate month it is due. The January-December file box is known as the Future bills box. At the end of each calendar month (for example May 31st) pull the bills from the Future file's next month's slot (June) and place them in the appropriate 1-31 Day file box due dates so they will be paid on the appropriate days in June,

After you write the checks and pay the bills, mark the receipts. If you have computer checks attach one of the check stubs to the receipt. If you don't have computer checks, I suggest you copy each check and attach it to the receipt or write the check information on the receipt directly. Two-hole punch all paid receipts and check stubs and place them on one of two manila file backers in reverse chronological order. For your general checking account, you will have two backers each month - one is designated as Firm Bills Only Paid, the other is designated as Client Costs Advanced (CCA) Paid Bills. If you have a bill that has even one line item on it to be passed on to a client, the entire paid bill and all receipts must be placed on the Client Costs Advanced backer. Utility bills, rent, computer loans, and repair bills are all placed on the Firm backer.

You will also have one backer for your Trust checks. If you have a lot of trust activity, you may need one backer per month, but start with one backer and see how much activity you have before you spend time on monthly trust backers. As you pay bills for clients out of the trust account, place the bill receipts and check stubs together on this backer and you will always have your trust information handy. There is no need to copy bills to a client file as long as you have this monthly backer system in place.

I recommend using a bookkeeping program like Quickbooks for your check writing and financial tracking. If you purchase computer checks you will have check stubs to attach to your paid receipts (no copying, no writing - just stapling and two-hole punching). You will also automatically have Profit and Loss reports and Balance Sheets which are pre-programmed into the software. There are transaction reports that can be filtered to only print Client Costs Advanced bills paid during a report period, and you can run one of these reports at the end of each month to place on the Client Costs Advanced backer. This serves as your data entry sheet for the billing system when you enter the client costs into the billing program. This report can be set up with the correct filters one time and be memorized to be available to print at the end of each month.

Data entry is also made simple if you know the trick of memorizing your entries. In Quickbooks, you can go to any entry and memorize it by hitting CTRL + M. Then every month when you pay the utility bill, all the information automatically pops up and the correct categories are entered. This is especially helpful on payroll checks.

Depending on whether you use a payroll service or calculate employment taxes yourself you can memorize the payroll group of entries to include your federal taxes, state taxes, local taxes, the employees' checks, and the payroll service charge. You can then enter the entire group at one time and edit each entry to match the payroll service report. Once you have the group memorized, everything is easy. A memorized group is nothing more than a batch of several checks to enter, and as long as it is money coming out of your checking account, it can be entered as a check. This includes automatic payments, EFTs, insurance premiums, investment withdrawals, along with any other automatic withdrawals you have chosen to have deducted from your account.

Supplies Needed: 1 Folder, 2-pronged at top of both interior sides

Designate this folder as your Shared Bills folder. Open the folder and designate one side for Unpaid bills, the other side for Paid. As a bill comes in that is to be shared with another attorney or passed on to a client, send a letter to the payee requesting payment. Place a copy of the letter and bill on the Unpaid side of the folder. Make notations regarding the specific accounting categories these were applied to. As the money comes in during the month, match up the reimbursements to these deposits and move them to the Paid side of the folder. At the end of each month, review the Unpaid side and determine whether you need to send copies to the payees with another request for payment.

Not Being the Bank

Supplies Needed: 1 Folder

This folder represents the client costs incurred, but not yet paid. For any amounts you wish to be paid prior to paying any expert, write a letter requesting payment from the paying party and place the original bill and copy of your letter in this folder. As the money comes in from the paying party, pull the letter and bill from this folder and place it in your 1-31 Day file box for payment. When you actually pay the bill in your software program (i.e. Quickbooks), decide on a special symbol to be placed at the beginning of the memo field, which will appear on the Client Cost Advanced transaction report, to remind you that it has been paid and does not need to be entered in the billing system and charged to the client.

Supplies Needed: 

1 Backer, or
1 A-Z file box for larger small firms

These are bills received by you for engaging a vendor, and for which another party has agreed to pay directly. Write a letter to the paying party requesting direct payment to the vendor, send along the original billing, and place a copy of your letter and a copy of the billing on your backer. There is no need to track these unless a vendor calls saying they have not been paid; then you have the paperwork you need to track down payment. For larger small firms, it may be more manageable to use the A-Z file box and file these requests alphabetically by matter name in order to easily locate the bills if a vendor ever calls.

In The End...

It may seem that there are a lot of letters to write requesting payment -- this is where your word processing software can work for you. Make up a general format for each style of letter and reprint that letter each time you need it. You may find after working with these letters and noticing your practice's use of them, a form letter would work well and further simplify the process.

Starting with this basic system will allow you to setup and gain control over the paperwork flowing into and through your office in the accounts payable department. A few file boxes can simplify your accounts payable life tremendously!
 

Jeanine Rogers is the founder of TimeBillers, Inc., a Portland-based billing outsource service specializing in attorney/client billing. She publishes a free monthly electronic newsletter, TBI Legal Billing Tips. To receive it, click here.