Keeping accurate records of your law firm’s accounts is a challenging yet vital part of running a legal practice. Legal accounting software simplifies your firm’s accounting and bookkeeping workflows—making it easier to stay compliant with ethics rules, protect sensitive client information, and effectively monitor your day-to-day cash flow.
And when that legal accounting software is cloud-based, everything runs smoother.
With that said, it’s not always a simple or easy decision to choose new technology for your practice. From understanding what software benefits your law firm to choosing the best legal accounting software for law firms, read on to learn more about your options.
Key legal accounting software features
Not sure what you should be looking for if you’re conducting a legal accounting software comparison? Consider the following key law firm accounting software features:
It’s essential that your firm’s bookkeeping of financial transactions and accounts be meticulous and accurate.
Legal accounting software that syncs your firm’s financial activity (the Clio and Xero integration, for example, lets you automatically connect client invoices and expenses from Clio with Xero) helps take care of bookkeeping tasks automatically—creating more accurate records with less work for you.
Capturing every minute of billable work is critical for accurate law firm billing and, ultimately, profitability. Lawyers can benefit from effective and easy-to-use time-tracking features—like multiple time-tracking capabilities from QuickBooks with Clio Manage.
Trust accounting must be done correctly in order for law firms to stay compliant. Tools like Clio’s legal trust and accounting software features help you create trust and operating accounts as required by legal industry regulators, generate invoices that comply with regulations, run reports required for trust accounting compliance, and easily reconcile accounts.
Legal accounting software with billing features (such as the ability to create or track invoices) or that connects with your practice management software helps simplify your workflows. Take Xero and Clio Manage, the integration lets your firm automatically connect your client invoices and expenses from your practice management software to your accounting software—streamlining the process.
As the 2021 Legal Trends Report found, the majority (66%) of consumers expect to pay for legal services online. This data shows that clients find software that securely accepts online credit card payments is more convenient. Online payment solutions like Clio Payments also streamlines your collections and accounting workflows.
No matter how big or small your law firm is, accurate, timely payroll is essential—but it can be time-consuming to complete manually. Online legal accounting software helps by automating your payroll.
Suppose you choose accounting software that automatically syncs payroll functionality with time-tracking and expense apps. In that case, you can also generate pay runs with the click of a button, for better efficiency.
Legal accounting software assists with taxes in multiple ways. Some accounting software helps prepare your taxes, or if your law firm hires an accountant to prepare your taxes, legal accounting software helps keep accurate records that are essential at tax time. Moreover, many online accounting tools have options to create useful online reports on taxes.
When applying taxes, accounting software can help as well. For example, the Clio Manage and Xero integration lets you apply a tax to an expense category in Clio, and that same tax amount will be applied to the client invoice in Xero.
Viewing and evaluating your firm’s financial performance is key to its success and growth. But manually creating reports is time-consuming and impractical.
However, with online legal accounting software, it’s easy to quickly produce reports that give you the insights you need—whether you need reports on sales, expenses, taxes, or other metrics. Some even have report customization options to get a clear view of what you care about most.
For example, in Xero, you can easily edit the layouts of your financial reports to prioritize what’s most relevant for your firm.
Features that help you balance your business accounts and simplify reconciliations (which may also include features for three-way trust account reconciliation) make it easier to verify your financial data, with less manual effort.
Accounting software with a robust client relationship management system (CRM) saves time and streamlines your firm’s invoicing and billing workflows.
Be sure to check out our legal accounting hub for more resources.
Benefits of using legal accounting software
By leveraging tools like legal accounting software, maintaining your practice’s accounts will be faster, easier, and more effective. Here are just a few benefits of using law firm accounting software:
Improve your law firm’s cash flow
Healthy cash flow is key to any legal practice’s financial health. The right legal accounting software helps you better manage and improve your law firm’s cash flow by providing a clear, real-time picture of the firm’s financial data.
Most modern online accounting platforms offer intuitive dashboards, so you can monitor your firm’s business at a glance. These dashboards show important financial data like bank balances, reconciliation information, outstanding invoices, budgets, and more.
Additionally, if your legal accounting software is cloud-based, this information will be accessible from anywhere, at any time.
The result? When you know exactly where your law firm’s money is, it’s easier to identify what parts of your firm are successful and where you’re struggling, to make more informed and strategic business decisions.
Save time on tedious data entry
Dealing with spreadsheets or manual accounting is time-consuming and leaves you at increased risk of human error. Law firm accounting software reduces manual data entry.
QuickBooks Online, for instance, works with Clio’s practice management software to sync contacts, invoices, financial information, trust transactions and disbursements. When you use these tools together through their Clio integration, this eliminates repeat data entry—saving you time and effort.
Save time on payroll
Payroll processing is a significant—yet often forgotten—overhead for many law firms. Payroll must be processed accurately, but it can be complicated and time-consuming. The best legal accounting software lets you automate your payroll so that you can complete the job accurately and quickly.
Another time-saving benefit? After you process your pay run using law firm accounting software, your accounts will be updated automatically.
Keep accurate financial records
When it comes to financial records at your practice, accuracy should come above all else. Otherwise, the records lose their meaning and value.
Using online legal accounting software will ensure important financial data is processed and tracked correctly, so it’s easier to keep accurate financial records for your firm’s bookkeeping and accounting. Cloud-based law firm accounting software will help you stay compliant with applicable ethics rules.
Use financial data to make better business decisions
In addition to being necessary to comply with ethics rules around legal accounting, accurate financial records drive law firm growth, as you need accurate data to make smart business decisions for your law firm.
Without regular—and accurate—financial reporting, you may not see potential opportunities, and smaller problems may inadvertently escalate.
Unfortunately, reports that give you what you need can be cumbersome to create manually.
However, with cloud-based law firm accounting software, it’s easy to quickly produce reports that give you the insights you need. You can use these reports to create budgets for your firm, track financial trends, and more. With the right information available when you need it, you can make data-driven business decisions to help your firm succeed.
How to evaluate law firm accounting software
Implementing any technology solution at your firm is a big decision—including legal accounting software.
While the benefits of a cloud-based accounting solution as a concept are clear, not all law firm accounting software is created equal. If you’re looking at your options for a legal accounting software comparison, keep the following considerations in mind:
Prioritize law firm accounting software features you need
Do you need software with trust accounting features? Do you struggle with billing, and need software that helps with time tracking?
Different legal accounting software options have different features, but that doesn’t mean that you necessarily need every single feature available. Consider what functionality would be most useful, and make them deal-breakers when selecting an option.
Think about the user
Whatever software you choose should be user-friendly enough to meet the needs of those using it the most at your firm. If your firm’s users tend to need more technical support when learning a new tool, look for options that are easy to navigate and offer personalized customer support.
It may also be helpful to read law firm accounting software reviews to get an idea of the user experience of other firms who have tried the potential software before you.
Choose cloud-based legal accounting software
With more flexibility for on-the-go and remote work, stronger security, and increased scalability, software that’s based in the cloud is advantageous to costly on-premise software solutions—including when it comes to law firm accounting software.
Cloud-based solutions let you work efficiently from wherever you are and integrate with other cloud-based solutions to create systems that benefit your firm and streamline your accounting process, while always staying up-to-date.
Consider your existing tech stack and workflows
The goal is to find a legal accounting software solution that works with and enhances the functionality of your existing tech stack. With this in mind, think about how you will manage certain workflows once you have implemented law firm accounting software. How could this accounting software work with how you handle your cases, time tracking, trust accounting, billing, payments, payroll, or any other important aspects of running your firm?
This is where accounting software that integrates with your legal practice management software can prove especially useful.
What kind of financial data do you need?
Whether you need specific financial data to stay compliant with your trust accounting or you want to create custom reports to help drive business decisions, law firm accounting software can help—but not all products will have all the features you want. Consider what you need, and seek out accounting software that fits those needs.
As a lawyer, it’s your responsibility to protect client data, including data that may be stored or processed in your legal accounting software. With this in mind, it’s important to vet the security features of any potential solution.
For tips on data security for law firms and how to vet potential providers of cloud-based services for security, read our law firm security guide.
Choose software designed for law firms
Accounting for law firms has unique requirements for trust accounting, billing, and more. While general accounting software may work, choosing accounting software that’s designed for law firms will be vastly more useful. Look for legal-specific accounting tools or software that integrates with legal practice management software to create a solution that works for your law firm.
Final thoughts on the best legal accounting software
At its core, the best accounting software for law firms makes it easier to follow accounting and bookkeeping best practices. It should be user-friendly, designed for the unique needs of the legal industry, and easy-to-access when you need it. In most cases, this means cloud-based legal accounting software that integrates with your existing tech stack.
The best legal accounting software also saves you time while reducing errors and unlocking easy, useful financial reporting capabilities.
While it may be tempting to save costs by taking care of accounting yourself, the right law firm accounting software helps improve your billing and collections process, save time on administrative tasks, and give you insights into your firm’s financial well-being.
While there are many law firm accounting options to choose from, the key is to look for options that have the features that matter most to your firm.
For example, with QuickBooks Online and Clio, manage your firm’s financial information, trust transactions and disbursements, and online payments in one integrated cloud-based solution. You save time and reduce the risk of error meeting client, firm, bar association, and law society obligations.
Note: The information in this article applies only to US practices. This post is provided for informational purposes only. It does not constitute legal, business, or tax advice.