Law Firm Accounts Receivable: How One Firm Found Aged Fees

Law Firm Accounts Receivable: How One Firm Found Aged Fees

Illustrative anonymized composite, drawn from recurring patterns rather than a single engagement. The firm named below was not involved in it. Every dollar figure is invented and rounded. Nothing here is guaranteed or predictive.

Most managing partners know what they billed last month. Far fewer know what they billed and never collected. Law firm accounts receivable is the money clients owe for work already done, and in a small firm it can age quietly for a year before anyone adds it up.

The firm in this composite is a small litigation and family law practice with six lawyers. Legal Ease Bookkeeping is a Fort Worth firm that specializes in law firm bookkeeping, and it fits one stage of the story: the monthly receivable review that follows a cleanup. Legal Ease is a paid featured member of Sam's List.

What Law Firm Accounts Receivable Looked Like on Day One

The composite firm bills about $2.4 million a year and collects most of it. Nobody was worried, because cash came in every week and the lawyers were busy.

The trouble showed up when the managing partner asked a simple question before a line of credit renewal: how much are clients actually behind? The billing system said about $410,000 was outstanding. The bookkeeper's report said about $350,000. Nobody could say which one was closer, and nobody could say how much of either was older than 90 days.

That gap is the first lesson. When two reports disagree on a number as basic as what clients owe, the issue is not collections effort. It is that no one owns the reconciliation between billing and the books.

The limitation: a difference between the two reports is not proof that fees are lost. Timing, unposted payments and credits can all explain part of it. It proves only that nobody has checked.

Why the Aged Receivables Report Did Not Match

The firm's first move was to pull an aged receivables report from the billing system and compare it, matter by matter, to the receivable balance in the books. An aged receivables report groups what clients owe by how long each invoice has been open: current, 31 to 60 days, 61 to 90 days and over 90 days. It is one of the most useful pages for a firm that bills after the work is done.

In the composite, the comparison turned up four causes. Some payments had been received and applied in the books but not in the billing system. A handful of invoices had been voided and reissued, so the old amount still sat in one report. A few matters had credits that were recorded in one place only. And a group of old invoices on closed matters was still carried at full value, because no one had decided what to do with them.

The last group mattered most. Roughly $140,000 of the receivable was over 90 days old, and about $60,000 of that was on matters that had closed more than a year earlier.

The limitation: an aged receivables report is only as honest as the data under it. If payments are applied late or to the wrong matter, the aging buckets mislead in both directions, so reconcile before you act on them.

Separating Earned Fees From Client Funds

A law firm has a complication most businesses do not. Some of the money in its accounts belongs to clients, not the firm, and the books have to show the difference.

Trust account and bar rules vary by state, and this article does not describe any state's rule. Ask your state bar or ethics counsel what applies to your firm. As a principle only, earned fees and client funds are kept separate, and the books should make it obvious which is which at any point in time.

In the composite, the receivable review exposed a few places where that line was blurry in the records. A client payment had been posted against an old invoice without a note about whether it was an earned-fee payment or a deposit. A transfer between accounts had a memo that did not explain itself. Neither was necessarily a violation. Both meant a reviewer could not tell from the books alone, which is the kind of ambiguity that becomes a problem in an audit or a fee dispute.

The firm's fix was procedural. Every receipt got coded as earned fees or client funds at the time it was posted, with a short reason, and anything unclear went to a lawyer for a call before the end of the month.

The limitation: bookkeeping coding does not make a transaction compliant. Whether a particular movement of money is allowed is a question for your state bar rules and ethics counsel, not for the ledger.

Law Firm Accounts Receivable Review: A Monthly Routine

Once the numbers agreed, the firm set a routine so they would not drift apart again. This is the part that costs time every month, which is why it tends to be skipped.

In the composite, the monthly review had five steps. First, reconcile the billing system's receivable total to the books and explain any difference. Second, run the aged receivables report and read the over-90-day list by name. Third, assign each old balance an owner, usually the billing lawyer. Fourth, record what was done: a call, a payment plan, a demand letter, a referral to the write-off review. Fifth, compare the over-90-day total to last month and note whether it is shrinking.

A review like this is dull by design. It produces a one-page list, a decision on each line, and a trend. Within two months, the managing partner could answer the credit renewal question in one sentence.

The limitation: a routine only works if lawyers act on the list. A report that goes to a partner who does not call clients just documents the problem more neatly.

Where Legal Ease Fits

This is the stage a firm like Legal Ease fits. A small firm needs the books and the billing system reconciled, receipts coded consistently and a monthly package that includes aging. That is bookkeeping work for a law practice.

Legal Ease Bookkeeping is based in Fort Worth, Texas, and was founded in 2016. Its profile lists about 12 employees and says it serves clients nationwide, with a minimum of $500,000 in revenue. Law firm bookkeeping is its stated specialty.

Legal Ease has 9 verified client reviews on Sam's List as of 2026-10-02. Each review is submitted by an individual who identifies as a client of the firm and rates it on communication, subject-matter knowledge, and overall satisfaction. Reviews reflect those individual experiences and do not represent an endorsement by Sam's List. Legal Ease is a paid featured member of Sam's List. Ratings and rankings are not indicative of future performance or results.

Legal Ease did not work with the firm in this composite, and nothing here describes its results. The limitation, plainly: its profile does not say that it reconciles billing systems, runs a receivable review, handles trust account bookkeeping or helps set a write-off policy, so ask whether it does and what each costs. The revenue minimum means a firm below $500,000 may not fit. Ask which billing and accounting systems it works in, and ask for references from firms of your size and practice area.

The Write-Off Policy Decision

By the end of the cleanup, the firm had a list of old balances that were not going to be paid. The question was who decides to stop trying.

A write-off policy answers that in advance. In the composite, the firm wrote down three rules. Balances over a set age on closed matters go to a review each quarter. The billing lawyer proposes each write-off with a reason, such as client unreachable, fee dispute settled or cost of collection above the balance. A second person, in this case the managing partner, approves anything above a modest threshold. Write-offs are recorded with the reason, so the pattern shows up later.

The policy did one useful thing before it wrote off a dollar. It exposed that two lawyers accounted for most of the old balances, which started a conversation about when they asked clients for retainers and how quickly they billed.

Whether a write-off has tax consequences depends on the firm's accounting method and the facts, so ask your CPA before you decide how to record one. Whether you may stop pursuing a client is also a separate question from whether you may write the balance off, and your bar guidance may speak to it.

The limitation: a write-off policy makes the decision orderly, not correct. Writing off too early gives up money a call might have collected, and waiting too long hides the real size of the problem.

What Worked, What Did Not and What Stayed Unresolved

By the end of the quarter in this composite, the billing system and the books agreed to within a small, explained difference. The over-90-day total fell from about $140,000 to about $75,000. Some of that was collected after calls the lawyers had been putting off, and some was written off under the new policy.

Several things did not work. Two clients who were called did not pay and did not respond to a follow-up letter. A few collections came with discounts the firm agreed to in order to close the balance. The monthly review also ate a few hours of a busy bookkeeper's and a partner's time, and one lawyer resisted the new rule that every old balance has an owner.

And one item stayed open. A client disputed a large invoice, and the firm and the client had not reached an agreement when the quarter ended. The balance sat on the list with a note, and the firm did not know whether it would be collected, reduced or written off.

Different firms and practice areas will see different results, and the firm named here was not involved. What the composite does show is a sequence: reconcile the reports, separate earned fees from client funds, review aging every month, and decide in advance who can write a balance off.

Frequently Asked Questions

What is law firm accounts receivable?

Law firm accounts receivable is the money clients owe the firm for legal work already performed and billed. It sits on the firm's balance sheet until it is paid, written off or reduced. It is separate from client funds held in trust, which belong to clients and are governed by your state's rules.

What does an aged receivables report show?

An aged receivables report lists unpaid invoices grouped by how long they have been open, usually current, 31 to 60, 61 to 90 and over 90 days. For a law firm, it shows which clients and matters are slow and how much of the receivable is old. It is only reliable if payments are applied accurately.

How often should a law firm review its receivables?

Monthly is a common rhythm, because old balances become harder to collect the longer they sit. The review is short if the books and billing system already agree. Ask your bookkeeper or CPA what cadence suits your billing cycle and how many matters you carry.

Who should approve a law firm write-off?

Many firms require a second person, often a managing partner, to approve write-offs above a set amount, so the lawyer who billed the work is not the only decision-maker. The right threshold depends on your firm. Ask your CPA about the tax treatment and your state bar about any client-facing rules.

If your receivable report and your billing system disagree, browse bookkeepers on Sam's List, including the firm above, and ask each how it would reconcile and review your aging.

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About the author: Kimberly Green is cofounder of Sam’s List, a directory and matching platform for financial professionals.