Learn how to track Work-In-Process (WIP) in law firms: unbilled attorney and paralegal time that sits on the books until invoiced. The video walks through auditing WIP from practice-management software like Clio, reconciling it with QuickBooks, and choosing between the IRS-preferred Advanced Client Cost method and the older Billable Expense approach. Set up proper billing codes and real-time tracking to catch common errors like time leakage and inflated expenses.
Chapters
So I'm going to assume that you've landed here on the Accountants Law Lab site because you got your first law firm client. And I wanna welcome you to the legal lane. It's really a fun ride. You're gonna find that there's a lot of nuances, and especially if you've came from working with contractors, it's a lot of similarities. So the leap to legal is not going to be as steep for you. But one thing that you'll find is that there is work in process, or WIP, as we like to affectionately call it as an acronym. And it's the unbilled time. So it's the time that they haven't billed for yet that's sitting in a space waiting to be billed. And a lot of times this is something that needs to be tracked, needs to be managed, needs to be billed. Some firms don't bill it every single month. Some firms hold it back and bill it at certain timeframes. For example, if they're working in a contingency space, they may be tracking all of their billable time and it doesn't really get billed, but they track it to manage it against the time, the legal services that they win in a settlement. So I'm going to help try to demystify what WIP is and what's hiding in the attorney's shadows of tracking this elusive, really elusive metric. So I think the best thing to start off with is what is WIP? WIP encompasses unbilled attorney time. It can be for research, maybe they're researching a case or a matter, but it's not been invoiced. It's that time that kind of gets added in. It can be paralegal time, it can be attorney time, it can be junior attorney time. Any out-of-pocket expenses that come along that maybe they didn't track, maybe they have— they don't bill for, but you want to track. These can be filing fees that they're just tracking. Those are hard costs that are being tracked. Anything like that, that you are paying out of pocket but needs to be billed back to the client. And unlike general business transactions like rent and insurance, it's tied— this is tied to ethical rules around those retainers that I've been talking about the last few weeks. So it's something that you want to look into. You don't want to inflate, you want to make sure that it's handled properly. So you want to start off when you get a new client, start by auditing the client's current WIP. Pull that record down out of Clio or LeanLaw, then look at what you have in QuickBooks and see if these two numbers align. Look at the bank, look at your tax return, take a look at the monies there and see if some of that aligns on the trial balance. Look at whether there's a lot of money sitting there that hasn't been billed. How old is it? I've seen some— I've gone into lien law on some clients and I see stuff that's been sitting here since 2009. Is that ever going to get billed or does that need to be taken out of advanced client cost? Because really that sits up in the advanced client asset account and it doesn't get ported down until it's billed and turns into billable income where the client— the attorney recoups that money from their client and then that kind of makes it a wash. So it's a clearing account. But sometimes it doesn't clear, and then you need to make a journal entry to book it in as a full-on expense for the firm. I know that there's ways of tracking this. This is something that if they've never really reconciled the advanced client cost account, it can be an eye-opening issue. We had it one time where a law firm, the bookkeeper didn't know what she was doing and booked in all these transactions and inflated the billable expense account with things that weren't there. She made a lot of journal entries. It made a big mess. We had to reverse that out into income to get them off the books. Of course, we did that along with the guidance from our tax professional. And when we did that, it became a real big taxable event because the client had taken all these expenses that weren't real, and we had to offset that with income to clear that account out. It was really messy. So it's a place as a bookkeeper, as professional, that you can— Yeah. Really help your client records be pristine. So you may find if you do work with a client that does leads billing, that you're gonna need to add the codes for leads billing. So there's specific codes in order to be able to process, to do the billing for a client and process 'em in the billing platforms. It's definitely required. If not, you might wanna have some codes to track it along the way. Tracking advanced client costs doesn't need to be a big process. You don't need to subcategorize it out and track it because if you're not— it's a clearing account. So, the money goes in when you pay for it as a law firm and it comes out of the operating account. And then when you recoup it, it clears it out. So, you don't need to get into the detail because it never really becomes an expense on the books if you're fronting the firm, this— the client, this money to pay for the expenses and you're getting the money back. So, that's one thing I want to really make clear. Sometimes when you get into some of the clients' books, you might see that they don't use advanced client costs at all. They use billable expense, and then when they pay for the expense, and then billable expense income when they recoup it. That's the old school method. IRS really wants us using advanced client cost because doing this method affects the books and the bottom line. And at the end of the year, they don't usually balance off perfectly. And then you might have more expense one year, more income the other. Definitely want to talk to the tax professional on those files to make sure that they're not doing some kind of an adjustment. I've seen it where the numbers are vastly different and there's a big swing in either way, where there's more expenses outlaid or more income, and you really want to talk with the tax professional, but maybe changing up the method, tracking every expense by client, or doing an adjusting entry at the end of the year that will then be reversed in the new year just to balance out that account so they don't see these massive swings in their income and expenses. You don't want to have that as you go through doing the work. You want to be able to have a really accurate picture of how the law firm is working on a day-to-day basis, on an annual basis. And if you have these wild swings, it's not going to give them the data they need to really project for the future. So you want to encourage the clients do real-time logging in. They want to catch the hours before they vanish, vanish. This is time leakage is one of the big issues with Clients, if they're not using software and they're trying to grab their little notes here and there and sticky notes all over the desk, not an efficient way to work, not, and not in this day and age. You really need to have a software that you can track that will help you do that. It's just a better way of keeping the records accurate. Working on one client, you put it over here, you track the time in and out. It's just a much better way. There's also some software called PointOne that will actually track as you move around working in the file. You may not be just generically working in Clio, but you may be working over here doing research. You may be working over here online for something for that client, and it's tracking all of your steps under that client name. It's magical software, AI-driven. It's really the way to go. You might wanna look into that. So when you want to work with WIP, WIP thrives in silos and it dies in integration. I've seen this happen. So you wanna automate the workflows. When time hits 80% of what you have in the retainer, or whenever the client does their billing, you want to pull a draft so that the client can approve the time. Sometimes they write it down. You wanna make sure you track that. A lot of clients write down a lot of the time, and you wanna track that 'cause that's really— they're gonna look at those utilization rates or the realization rates in this case where they're actually tracking the time that they're being paid for. To see the rates. I looked at the realization and utilization rates that were in the Clio Trend Report, and I was like blown away by state, how vastly different they are, 30%, 40%. It's amazing to see the swings by state. You want to harness technology and really sidestep any sneaky pitfalls. Tech is your work-in-process whisperer. If you're not using tech, you're really losing out in this world and this age. We're here in 2025. It makes a big difference. So you don't want to leave that behind, and you want to have discussions with your tax people at the end of the year about the WIP and what's sitting there. You don't want to overlook any soft costs, things that are being billed back, maybe just as simple as something for research. That's just time being tracked that could be sitting on a case or matter and not billed, and it's important to bill it. So if you really track WIP properly. It's so funny, Sarah and I one time typed it in as WIP, like whipped cream, and we both laughed because we both did it. It was hysterical. But when you're looking at WIP tracking, you want to turn those pitfalls into the powerhouse processes for your attorney-client. Start small, take a look at it, take a look at it from the high level, have deep discussions with your tax professional, and try to map out a plan to work forward with your client. They'll be happy. You'll be happy. Don't forget, any time missed is money on the table that's just lost or wasted. They'll light it up on fire if they're not getting paid for it. So if you've got a WIP horror story, I'd love to hear it. Join our Accountants Law Lab Facebook group. We have a lot of discussions in there and join us there. You'll see these videos and these articles and then let us know what you think. We'd love to have the conversations with you. So on that note, we'll see you all next week. Bye now. Bye.
