The presentation explains how bookkeeping and accounting for contingency‑based personal injury law firms differ from traditional practices. It outlines the need to track advanced client costs—expenses the firm pays on a client’s behalf (filing fees, medical bills, therapy, etc.)—and to reconcile those costs against the eventual judgment or settlement. The speaker describes how legal fees are usually a percentage of the recovery, requiring precise expense tracking to avoid unrecoverable costs. Cash‑flow volatility is highlighted, including the use of third‑party loans (e.g., Advocate Capital) to fund client expenses, and the necessity of sub‑accounts to monitor loan interest and repayment. Advertising spend is another major expense category; the speaker recommends breaking it into sub‑categories (billboards, online ads, etc.) and linking it to client intake data to assess ROI. Ongoing operational concerns such as work‑in‑process (WIP) for long‑running cases, outstanding checks that may become unclaimed property, and proper journal entries for wins versus losses are covered. The talk stresses the value of advisory bookkeeping—providing KPIs, attorney production metrics, and cash‑flow insights—to position the bookkeeper as a strategic partner. Finally, several software tools are recommended (Dext, Hubdoc, Clio/Clio Grow, LeanLaw, Casepeer, Filevine) and practical tips for integrating them into the firm’s workflow are offered.
Chapters
This week we're gonna talk about contingency attorneys or personal injury attorneys in, in this respect, although you can be a contingency attorney and not be personal injury, but for the most part, they're, they're personal injury attorneys. And you might run into these types of attorneys as you go through working with attorneys and law firms. I have to tell you that their, their type of law practice, and as far as it goes with accounting and the bookkeeping work, is different. They have trust, but it's different because you're not going to see trust balances, a lot of trust balances. It's more they collect expenses and pay expenses on behalf of a client, so advanced client costs. And then that's really where your focus— And then when they win the matter, hopefully they win the matter. When they win the matter, they get a big judgment or they get a big class action suit. That's even more complex transaction to track. But if they win the matter, let's just use a car accident. For example, uh, they win the matter. What happens is they get the money, the insurance will pay the money, the money goes to the law firm, and then when the money goes to the law firm, the law firm now has to calculate all the expenses that they paid on behalf of the client, which could be filing fees. It could be simple things, very simple things like a filing fee. It could be paying for personal injuries as far as that goes, maybe some physical therapy, doctor bills, medications. It can be anything like that on behalf of the client on this particular matter. And then they get to recoup that money that they've put out. So that was operating money being spent on expenses for the clients, so direct costs. And then when they get the judgment, they get to collect that money back from the client as well as any legal fees. And the legal fees aren't calculated by hour typically. They are more a percentage, which is why if you get a job working with a contingency attorney, you really wanna ask them, can I see just a template of what you agree to with the clients. You might run into some clients that will say to you, I don't, I do 33.5% here, or I do 40% sometimes, I do 20% sometimes. So that might have a varying percentage, but you really need to track the expenses very closely because any missed expense becomes a law firm expense. Because once the matter's over, they don't get that money back. Once they win the matter and they, and they divvy the funds out and give the client back their piece, their winnings, their award, and then they give back— and then they earn their fees and then collect on all the bills that they've spent. Then it's usually the trust is exhausted, so there's no more trust funds in the account. Matter, case is closed, and it's as simple as that. The more difficult part of tracking this type of law is you will find that you really have to track the expenses. So having a tool in place like a Dext or having a Hubdoc is really critical because you can even segment out those expenses, put them in maybe little file folders if you want to keep all that together and separate as they roll in. You can also— and I've seen this happen, and this is coming from a question from somebody in our group— I've seen it where someone can take that advanced client cost and just like the client trust liability, because it's so continuous, they don't have a lot of that. They'll just sub down to track all those expenses. So they're tracking the expenses, advanced client cost, direct expenses in sub-liability accounts under that advanced client cost account. Sounds like a genius idea, right? The issue you have is if you don't have the software, it can get complex to track and follow. And I've also seen it where somebody will just check off the billable box. So when they pay the bill or the expense, they check it off as billable. They put the customer name on it. And then at the time of this matter coming to fruition, they'll create an invoice, suck in all that billable expenses, and you'll see that all kind of be put on an invoice to be part of the calculation of figuring out what the client gets, how much, you know, was reimbursed for the expenses that were loaned out to the client to pay for those expenses prior to the matter settling. We also see with the other piece of complexity with this type of law firm Is it because it really can be a cash flow situation at these firms, they're either feast or famine. We've seen it where the clients will take out loans. So there's Advocate Capital and there's a couple other companies that you'll see. They actually loan out to the law firm money. So don't forget, this is to the law firm. So it's a loan to the law firm, not a loan to the client, but it will be segmented out by the client and it will pay— they'll loan the law firm money to pay back pay the expenses on behalf of the client, but you have to calculate that because it's typically in their agreement that this is what's gonna happen and that the client, upon winning the matter, the client will reimburse for the interest. So that's another piece of complexity that you will have to also build out sub-account line item out so you can track the piece of the loan that belongs to the particular client. More work. So make sure when you're pricing work like this that you factor in— some people go, oh, personal injury's so simple. We don't have to deal with trust really. It's an after-the-fact thing, but there's these nuances where you really have to track advanced client costs. You really have to track maybe a loan that's being— helping the law firm foot the bill of all these mini loans to the client that they're paying for these direct expenses. So there's a lot there that you wanna consider. Now, an active practice, personal injury, huge amounts are spent on advertising. There's a lot of competition out there for them, and know that you're gonna see some really large numbers. You'll see billboards. We've seen 'em on the highways, right? Billboards. 1-800-GOT-HURT, and you'll see that on the, on the billboard. And that's something that you want to look at in a personal injury firm or a PI firm. You are going to see that, and you're going to see big numbers. You might even see— I'm trying to think of the other expenses that are different. It's not that they're different, you're just going to see different values there. So it's been my experience, as you start to work with these firms, you're going to see differences and things like that because they have to— they're going to have some different expense categories. on their books because they're going to have a different variety of perhaps ways of getting the advertising out there. So you might want to subcategorize out the advertising category to be paid ads, online ads, or physical billboards. You want to track that out because you want to know which— you want to help your client understand which form of advertising is helping them bring the, bring the people in. It's a really good place for if you're using Clio, using Clio Grow, track the pathway of the client from the initial piece of it. Because, and a lot of firms don't just use, don't use any software. So you might want to even integrate maybe a HubSpot or something that they can track the client journey. So they know where the advertising is working for them. Who does that good work of figuring out where these, where this money is being spent? It's another part of the work we do for the clients because this is something that, it's something that's not often considered. If you're getting just a low-level bookkeeper, just kind of pumping numbers in the books and not really helping client, you really want to assist your client as that advisor to work with them, to help them understand where the money is being spent and how effective it is. And that's just part of the work that we should be able to do for our clients. We're in these numbers all the time. We can break out some great KPIs and be able to show them to the client to help them figure out and determine their business. This work that they do, most all attorneys, I don't care what practice area, they're very, very busy. But this kind of work will assist them and you will just be that shining star for them when they see that you took the extra step to help them figure this stuff out. I've seen marketing agencies come in and do work for attorneys and they don't even work with the law firm to have the staff track where the lead is coming from. If you don't track the lead, how are you gonna know what's really working in the firm? So that's part of it. Mm-hmm. And there's a lot more to the work that we do, but some of these personal injury firms are large. You wanna help them with paying the staff, the attorneys. You wanna track the attorney production. Are they winning the matters? Are they losing them? You could use custom fields in QuickBooks to kind of track that stuff. And there's just so many ways that you can help a personal injury attorney. Like I said, a lot of times the bottom line, they can get pretty tight on cash flow. So being a cash flow expert is going to help them because there are sometimes when they're— you're looking at, they don't have enough of payroll and then they have to do, you know, get going on some of these matters to get the money in the door. The best personal injury attorneys that I've seen will have a methodology in place because for the law firm, yes, for the client, it's always about making sure the client is getting the most for their money. But sometimes for the law firm, it's better to have some kind of a workflow in place that the matter comes in and then it's looked at and maybe try to work with the insurance company to get that money, maybe get it agreed upon before it goes on for 3, 4 years before it gets into court. Which brings up another part of this story. As you go, another tip here, if you're working with a personal injury attorney, don't think that if there's expenses that have been on the books for a very long time, don't think that they're— what, what are they doing here? In a normal company, you don't see things going back 3, 4, 5 years. Uh, those things, if they're still showing as open and they're still showing as work in process, they are work in process. Some of these matters take 5, I've seen them go up to almost 10 years. So it's important to know that when you see that on their records and it's showing it's still open, it's still open until the case is closed. So another good tip to help your attorney clients is to go through that list. I would do it at least minimally quarterly, go through the list, look at the outstanding checks. A lot of times with these firms, they pay out and people don't cash the checks. Sometimes I've seen some pretty large checks sit on the books They have to go through the steps to try to get that money back to the client. The client doesn't cash the check, and then it becomes a situation where they have to bring that money to the state as unclaimed money. So there's a lot of steps involved in that. You want to continually look at what's open and outstanding. Another thing I've seen with contingency attorneys is that a lot of times they don't know how to book it in. So they could be booked in as a journal entry when the matter comes and they win the matter or they lose it. Remember, if they lose it, you got to take all those expenses off that advanced client cost and book them into billable expenses not recovered. So that's another part of this work is you have to keep track of that advanced client cost account. You gotta keep it reconciled. You gotta keep it beautiful. You might see some law firms do have liens and there's liens put on the, on the client. So that will be part of working with directly with the attorney of record to find out what's out there and open. It's always good to kind of preset and pre, pre-itemize what is on there, the matter one for $100,000, there was, you know, $30,000 in expenses recouped. So you take that off the top, now you're down to $70,000, and then whatever the percentage is that goes to the law firm and then goes to the client, you will do that. Some law firms in their workflow will also pay directly out of trust. So the money comes into trust and then they will make an invoice to pay themselves back, but then they'll pay the client out of trust. And I've seen some law firms where they actually move all the money over and then pay the client out of operating. Maybe they don't have a check-in trust. Maybe they don't want checks in their office that go directly to trust. They're trying to protect the trust, or maybe it's just part of their workflow. So it's important to really discuss a lot of these things with the attorney. So, you know, get that little checklist after watching this video, write it down in the notes. And, and these are good questions. So when you do have someone approach you about a personal injury law firm, you want to ask these questions so that you— the attorney knows when they talk to you that you know what you're talking about. You're familiar with their workflow, you're familiar with their type of law. And it will set you up for a great client and bookkeeper or accountant scenario. Looking at software, there's some other software out there. There's Filevine. Not really a fan of it. It's, it's okay software, but it's also specific to contingency lawyers. Doesn't do what you think it does. It's not a Clio. It's not even a LeanLaw. You might want to get LeanLaw for the client or factor that in as a, as a tool to save time. So maybe the client won't ever use it, but for you to track the expenses, it's probably a really great tool to add. It doesn't cost a lot. You can factor it into your pricing for your client and then use it to get those expenses in and cost coded and tracked. You're gonna track that WIP, you're gonna track that work in process, the expenses per client right in there. And you're not having to do like a messy subaccount situation. So that's a, that's a good tip. Uh, it's not that expensive. To, to purchase it, include it in on your own. There is also Casepeer is another big one. You'll see a lot of times with the attorneys that they'll have Casepeer. A lot of stuff in this video, but I hope it was helpful. And if you have any questions or comments, feel free to reach out. I am easily found on social media, or you can reach us at the Law Lab. And I hope you have a wonderful, wonderful day and good luck with your personal injury attorney. Bye now.
