Manage Matter Costs (Disbursements)

To optimize the organization of your matter expenses, we have separated them into two distinct categories: hard costs and soft costs. By tracking reimbursable costs separately, your firm ensures accurate revenue accounting, effectively offsetting Profit & loss expenses.

Hard Costs

Hard costs, also referred to as direct costs or direct disbursements, represent items for which you’ve paid and intend to seek direct reimbursement. These costs are directly associated with a specific transaction and matter.

Examples include:

• Filing Fees: Charges associated with filing documents with the court.
• Expert Witness Fees: Compensation for experts providing testimony or consultation.
• Travel Expenses: Costs related to travel for legal purposes, such as transportation, lodging, and meals.

Important: Since our software does not include business accounting currently, it is recommended to categorize all expenses as soft costs. Should you decide to input associated transactions at a later time, you can then link your existing soft costs to transactions, thereby converting them into hard costs.

Expense Reimbursement

• • If the expense was posted as a reimbursable client cost, reimbursement posts to the Reimbursed Client Costs (Income) account, which offsets the Reimbursable Client Costs (Expense) on Profit & Loss.
  • If the expense was posted as an advanced client cost, reimbursement is posted to the Advanced Client Costs (Asset) account, which reduces the amount on the Balance Sheet.

Manage Hard Costs

To manage your hard costs, see:

• Add a Hard Cost
• Edit a Hard Cost
• Delete a Hard Cost

Soft Costs

Soft costs, alternatively referred to as indirect costs or cost recovery, encompass “in-house” items that are typically considered part of your firm’s overhead. A portion of these costs may be attributed to your client.

Examples include:

• Office Supplies: General supplies used for internal office operations.
• Marketing and Advertising: Expenses for promoting the firm’s services, including advertising, website maintenance, and marketing materials.
• Utilities and Rent: Costs associated with office space, utilities, and other facility-related expenses.

As a firm, decide on reimbursement strategies: absorb costs, add a percentage fee uniformly, or itemize charges. Soft cost entry allows itemization, while a percentage fee can be implemented as an overhead charge for transparency and flexibility in billing.

• Absorbing the Cost: The firm may choose to absorb certain costs without charging them to the client, treating them as part of the general overhead.
• Adding a Percentage Fee: Another option is to add a percentage fee to every invoice. This fee helps cover general overhead costs and is applied uniformly to all clients.
• Itemizing Charges: For those who prefer transparency, itemizing charges allows you to list specific costs on the invoice. This is particularly relevant for soft costs, where details are provided for each expense.
• Overhead Charge: If you opt to charge a percentage fee, it can be added as an overhead charge. This is a systematic way of incorporating general overhead expenses into client billing.

Expense Posting:

Upon entering the larger firm transaction (e.g., for paper or printer ink), it has already been accounted for in the firm’s Profit & Loss. Consequently, this entry has no impact on accounting reports.

To configure the posting of costs based on the billing type for each matter, navigate to Setup > Accounting in your firm’s settings. Here, you can define how these costs are posted for each matter billing type. Adjust the settings to align with your preferred accounting practices and billing requirements.

• • Option 1: Reimbursable Client Costs (Expense) – Impacts Profit & Loss
  • Option 2: Advanced Client Costs (Asset) – Impacts the Balance Sheet (This is the sole option available for Canadian firms)

Expense Reimbursement

Soft cost reimbursement is posted to the “Inhouse Reimbursed Client Costs” income account. This action increases income on the Profit & Loss statement, effectively offsetting the corresponding expense.

Manage Soft Costs

To manage your soft costs, see:

• Add a Soft Cost
• Edit a Soft Cost
• Delete a Soft Cost