How it runs for law firms and solo practitioners
Unapplied cash is cleared before each close.
What is cash application?
Cash application means matching money received from customers to the invoices it pays and recording that in the accounting system. It covers bank receipts, checks, lockbox files, card payouts and remittance advices, including partial payments, deductions and payments with no reference. Done well, the aging is accurate and no customer is chased for an invoice they already paid.
What we handle for law firms and solo practitioners
- Classify every receipt as operating or trust before posting
- Apply operating receipts to invoices by matter within 1 business day
- Record trust receipts to the named client ledger with the purpose noted
- Flag ambiguous receipts to the responsible attorney before posting
- Clear unapplied cash to zero at every month-end
The KPI that matters here
95% of receipts classified and applied within 1 business day with zero receipts posted to trust without a client ledger reference.
Law firms compliance notes
IOLTA and trust accounting (US and Canada)
Client funds sit in a separate trust or IOLTA account with an individual ledger per client, and the firm may never hold its own money there beyond what the rules allow for bank charges. We support the supervising attorney by keeping the client ledgers current, preparing the monthly three-way reconciliation and flagging any negative client balance the same day. We never have signing authority on trust accounts and never move client funds; the attorney approves and executes every transfer.
SRA Accounts Rules (UK)
Firms regulated by the Solicitors Regulation Authority must keep client money separate, reconcile client account at least every five weeks, return client money promptly when there is no longer a reason to hold it, and obtain an accountant's report within six months of the period end unless exempt. We prepare the reconciliations and the working papers for the COFA and the reporting accountant; the firm remains responsible for the client account.
Retainers, earned fees and transfers
An advance fee deposit is a trust liability until the work is done and invoiced. We prepare the transfer schedule showing which earned fees may move from trust to operating after the invoice is issued and any required notice period, and the attorney authorizes the transfer. Revenue is recognized when earned, not when the retainer is received.
Costs advanced and disbursements
Amounts the firm pays on a client's behalf are recorded as a receivable from that client and matter, not as firm expense. In the UK, disbursements need correct VAT treatment depending on whether the firm acted as agent. We track each cost to its matter and confirm the VAT position with the firm's accountant.
Law firms software we work in
- QuickBooks Online
- Xero
- Bill.com
- Clio
- LeanLaw
- CosmoLex
- PracticePanther
- LawPay
- All 50 platforms
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Frequently asked questions
What happens when a client sends money without saying what it is for?
The receipt is held in a clearing account and the responsible attorney is asked the same day whether it is an invoice payment, a retainer deposit or a settlement. Nothing is posted to trust or operating on a guess, because misclassifying a trust receipt is a rules breach. Once the attorney confirms, the entry is posted and the clearing account is cleared.
How are settlement receipts handled?
A settlement check is a trust receipt recorded to the client's ledger in full. The attorney then prepares the settlement statement and authorizes the disbursements to the client, to lien holders and to the firm for its fee and costs. We post each disbursement from the client ledger as the attorney executes it, and the three-way reconciliation shows the movement.
Do you apply LawPay receipts separately from bank receipts?
Yes, LawPay deposits are split by the payout report into fee payments and trust deposits, and each is applied to its invoice or client ledger at the gross amount with fees charged to operating. The Stripe reconciliation page for law firms explains the payout workflow, which is the same for LawPay and Clio Payments.
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