LeanLaw Billing Types: Hourly, Flat Fee, Evergreen, Contingency and More for Legal Bookkeepers

Hey everyone, welcome back. So if you come from general bookkeeping and you're used to a simple workflow or a simple write-up client, and you're used to the workflow of just do the work, Send the invoice, get paid. Law firms are completely different. They use a wide variety of billing arrangements from hourly fees to fixed fees to evergreen retainers to contingency to a hybrid, kind of a combination of all of those, and sometimes even subscriptions. So you've got a lot of variety here, and each with its own trust accounting rules. So add that complexity and its own revenue recognition requirements. As a legal bookkeeper, understanding these billing types and how LeanLaw handles them is critical. Get it right and you become an indispensable partner to your law firm client. Get it wrong and you risk trust account violations and misstated revenue and some serious compliance issues. So in this video, I'm going to break down the most common billing types, why each one's unique, and exactly what you need to know as a bookkeeper. So let's go. In regular business, money usually equals revenue earned. In law firms, it's a little bit more complex. A client might pay $10,000 upfront, but that hasn't been earned yet. An attorney might finish the entire case before collecting anything. Each billing type requires different handling in lien law and different accounting entries in QuickBooks. And knowing the billing type on the matter before you touch the books will prevent you from making costly mistakes and having to do the corrections later. So for hourly billing, which is probably the most common one, attorneys set and track their time with set hourly rates. And then sometimes, let's get it a little more complex, they'll have certain rates for one kind of client, certain rates for another. You have the ability to do all of that in LeanLaw. But it can get very confusing. Different timekeepers can have different rates. So maybe the lawyer's working with a paralegal who could have a different rate as well on that same matter. So in LeanLaw, the time entries are logged in against the matter, compiled into a draft invoice, and then it's reviewed by the attorney, and then it's approved, and then we send it. So the key bookkeeper points are revenue is recognized when the invoice is sent. Not when the time is entered. When it comes to QuickBooks, watch the unbilled time report closely. If you see that there's a lot of time being built up by maybe one or two particular attorneys, that's a good time to bring that to the managing partner and say, we're seeing this. Is there a reason this is happening? Track write-offs and discounts at approval. So keep an eye on how much gets written off by some attorneys. Some attorneys write a lot off, and if it's not really being tracked, it can really cost the law firm a lot. Know when trust accounts are being paid to pay an invoice, so know when they're getting applied. LeanLaw moves the money from trust to operating. It does the transactions for you so that it ensures that you post it correctly inside of QuickBooks. And a common mistake I see is people recording trust account deposits or retainers as income. They're not incomes till it's earned. So that's a liability and it should be placed as a liability until it's earned. LeanLaw does that beautifully. You just send out the trust request and it gets put in the right spot. So then we've got fixed fee billing or flat fee billing. You'll hear that term around the law firm. It's a set fee for a defined scope of work. It's very common in estate planning, formations, divorces is another place we see a lot of flat fee billing. And LeanLaw lets you set a flat fee at the matter level and invoice as milestones are completed. So here's a few key bookkeeper points when you're looking at this. Most flat fees go to trust until it's earned. Earned upon receipt means that the— and really you need to see the trust, the fee agreement between the client, the law firm client and their client, and know the bar rules. So you have to really know that before you start putting the money in the places that it has to be placed. Know if it has to go to trust or not. This is a high-risk area for trust errors. So never assume, always check. And it's a little ProAdvisor tip. When you're onboarding with the client, ask the attorney, is there a fee earned upon receipt or does it go into the trust account always? Does all the money always go into trust or is there times when it's earned when the client actually becomes a client? Know these details when you start working and ask these questions when you're in the very beginning stages of your time with your attorney. Ask to see the documents between the attorney and the client. They can give you the general documents without any names on it. So you can see what the agreement is between the client and between the law firm's client. Evergreen retainers, we do see this sometimes with some law firms. It's when the client maintains a minimum balance in trust at all times. So the evergreen retainer could say $7,000 has to be in trust all the time. And then as the month comes, work is done, some of the money's moved off that trust retainer and applied to the bill. And then you have to bring the money back up to $7,000, whatever that is, it gets billed. LeanLaw handles this beautifully for you. You don't have to do any of the tracking or figuring out of the money. As the funds are used, they are replenished, and LeanLaw tracks the threshold so it can trigger those replenishment requests. So for bookkeeper points here, every deposit stays in a trust until it's earned on an invoice. Monitor these balances. Low funds can create a risk for the firm, and attorneys actually love this model because it keeps the cash flow very predictable and it reduces large receivables, right? It eliminates that. So the next type, which is always fun, is a contingency fee. So the law firm starts doing all this work for a client and no fees are earned until the case is won or settled. Attorneys take a percentage of the recovery, and in lien law you can track your expenses during the cases, but you're not even have to generate any invoices because This is usually a case of they go to court, they win the judgment, and then they get the money and it's divvied out as it goes. So in this case, there's no revenue until the settlement. So that's one of the points you want to know about. And settlement funds always go into trust until they're divvied out. Maybe there's liens that have to be paid. Obviously they're recouping their expenses that they've paid, their advanced client costs. The law firm usually gets 33 1/3%. The client will get some money back out of that too. And there's usually a report you'll get from the client that's going to give you the listing of how the money is to be broken out. Make sure the money has actually hit the bank when they get the deposit, the big check-in from the insurance company, for example, and it goes into the bank. I don't care what insurance company is, make sure that money is in the bank before you start dispersing. That's something that's very important. I've seen some pretty large checks come in from insurance companies that are bounced because the insurance company didn't move the funds to this particular account that the money's being dispersed out of. And then make sure you track the advanced client costs very carefully. They have to be recovered, so you don't wanna miss any, cuz once the settlement is won and it's disbursed, then the funds are done. And so if something comes in as a straggler, usually the attorney or the law firm has to eat that. So forgetting to track expenses can lead to write-offs at settlement time. So make sure you're tracking it. And when you disburse, you disburse it out properly and it has to be dispersed to the penny. We see it where a penny or two, they divide by 3 and it doesn't equal out. And then there's still this penny that would've been the third or two divided by the different parties. And then it leaves a penny because of the rounding. You have to disburse the penny, give the penny back to the client, but get that off the books. So hybrid, obviously that's a combination of any of the ones I just described. They might have some flat fee expenses and then some hourly fees for litigation cases. They might have contingency cases and they do a little bit of that too. They dabble in all different practice areas. So document which rules apply to which type of billing and then look at the revenue recognition. And that can change if the matter changes and you have a different matter. And always refer back to that fee agreement that the client has with their client. And then of course there's subscription billing, and I don't see a lot of that, but it does exist. It's recurring legal fees. So a client will pay a 12th of it and every month there's a bill going up. Know that exists. It's generally recognized as revenue the month that it's billed. So there's no trust accounting per se. Prepaid accounts are handled a little bit differently. So make sure you confirm with your client or the client CPA. And it's easier to start to notice if somebody's not paying their bill, right? So you can catch that fairly early and keep the collections low. So in the article that's attached, there's a quick reference table. So you'll know at a glance what each one of these is and how often trust or trust accounts involved. But just know that the golden rule for every billing type is this: unearned client funds belong in the trust account, not in the operating. Moving money too early will create a compliance problem, even if it's an honest mistake. LeanLaw's trust workflows, matter ledgers, and QuickBooks integration give you a clear audit trail. But the software works best when you understand the rules. So it's just as important to still understand the rules. Master all these billing types so you have them nailed down, and you'll move from simply recording transactions to being that trusted financial advisor for the firm. If you have any questions about billing management at all, or any billing arrangements, please feel free to reach out and ask the questions. Write it in the comments below. I read every one, and we're here to help. Which billing type do your clients mostly use? I'd love to hear from you. Let me know below. And if this video helped you, please hit the like button and please subscribe. But thanks for watching. You've got this. Bye now.