5 Common Law Firm Accounting Pitfalls to Avoid

5 Common Law Firm Accounting Pitfalls to Avoid

In this blog, we feature insights into how to avoid 5 common law firm accounting pitfalls that contingency fee law firms typically face.

Contingency fee law firms face unique accounting challenges due to the nature of their unique business model because they operate on a deferred income basis where they receive payment for their services only after a successful case outcome. This can make it difficult to track income and expenses accurately and can lead to several common accounting pitfalls if not managed carefully.

Here are the 5 common law firm accounting pitfalls that contingency fee firms should avoid:

  1. Misunderstanding Deferred Income and Revenue Recognition: Contingency fee law firms should have a clear understanding of the difference between deferred income and revenue recognition. Deferred income is earned but not yet received, while revenue recognition is when income is earned and recorded on the firm’s financial statements. Contingency fee law firms typically recognize revenue when a case is settled or a judgment is won.
  2. Failing to Track Expenses Properly: Contingency fee law firms often incur significant expenses upfront, such as case costs, expert witness fees, and court costs. These expenses should be tracked accurately and allocated to specific cases or clients. Failure to do so can lead to inaccurate financial reporting and make it difficult to assess the profitability of individual cases.
  3. Not Establishing Clear Accounting Policies and Procedures: Contingency fee law firms should have clear accounting policies and procedures in place to ensure consistency and accuracy in financial reporting. These policies should cover topics such as revenue recognition, expense allocation, and case reserves.
  4. Lack of Internal Controls: Contingency fee law firms should implement internal controls to safeguard assets and prevent fraud. This may include implementing dual control procedures for check signing, requiring pre-approvals for certain expenses, and conducting regular audits.
  5. Not Seeking Professional Accounting Advice: Contingency fee law firms should consider seeking professional accounting advice to ensure that they are complying with all applicable accounting standards and regulations. An experienced accountant can help firms develop sound accounting practices and avoid costly mistakes.

By avoiding these common accounting pitfalls, contingency fee law firms can ensure that their financial reporting is accurate and compliant, and that they are managing their finances effectively. This will help them make sound business decisions and achieve long-term financial success.

Meet with Esquire Bank

Learn how your law firm can leverage case cost financing to free up capital that can be invested in building out key areas such as marketing, technology, accounting, operations, or investing in case acquisition, talent hires, and scaling law firm growth. Schedule a no-obligation consultation with an Esquire Bank Business Development Officer today at a time convenient to your schedule.


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The information provided in this blog is provided for general informational purposes only. Some of the information may not be applicable or appropriate for all law firms.

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  • Life Cycle Stage: Educated - Best Practices
  • Content Tier: platinum
  • Content Type: blog

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