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Controlling Law Firm Client Disbursements

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It is imperative that firms keep tight controls on client disbursements as they are essentially unsecured, non-interest bearing loans being made to the client on behalf of the firm.   Good asset management of your client cost account includes unbilled (WIP) and billed (A/R) is crucial.  [clear]

Client Disbursement Best Practices:

  1. When possible have the client pay the expense directly.  On average the time between the firm paying the vendor invoice and being reimbursed by their client will stretch between 90 and 120 days.  Be sure good systems are in place to manage expenses sent directly to the client.
  2. If you anticipate a client will have significant client expenses, require a retainer. 
  3. There are practice areas that tend to have higher client cost than others – plan for it.
  4. Set policy that expenses over $500 will be billed immediately to the client when incurred.  Don’t wait until the next billing cycle.
  5. Bill expenses every month – no exceptions.
  6. Watch billing write-offs and A/R write-offs on hard cost expenses.   These should not be negotiable.   Be sure your compensation plan has the policies and processes in place to discourage/penalize the writing off hard costs.
  7. Employee reimbursement requests need good internal controls and processes.   Require employees to submit all reimbursements by month end. 
  8. Use a single method/process for reimbursement.  Don’t pay some expenses through petty cash and others through check disbursements, be consistent.
  9. Establish policy that employee expenses submitted after 30 days should only be reimbursed if they are collectable from the client.    

 Remember you’re in the legal business – not the lending business!