Where Managing Legal Accruals Goes Wrong (& How to Make It Right)


Legal accruals account for:

  • Incurred costs not yet invoiced
  • Unpaid invoices
  • Rejected invoices

The responsibility for managing accruals is shared by:

  • Your legal department
  • Your finance department
  • The law firms’ finance departments

Between those six bullet points, however, lie infinite opportunities for something to go wrong. Here are some of the challenges your legal team, your law firms, and your finance team are all likely to face when managing your legal accruals and how you can best curb the potential adverse effects. 

Timely Submission

The challenge

If your law firms and legal department are currently tackling a very manual and inefficient accruals submission process, you might be familiar with this scenario or similar: 

A member of your legal team sends out copious emails to your law firms once a month or once a quarter with a spreadsheet containing the required accruals information. 

If you’re yearning for a more timely submission process, the following suggestion might help. 

How to ensure its application

It’s important that your legal team is consistent with your schedule so you’re not creating any confusion for anyone. Your law firms should have a centralized system of record for adhering to your rules, so you might want to include your accruals submission deadline in your outside counsel guidelines to ensure timely submissions. It’s your law firm’s centralized accounting department’s responsibility to submit this information, so make sure they are 100 percent aware of when submissions are due by setting up automated email alerts. If your accruals submissions are due six days before the month ends, for example, set up staggered automated reminders until the day before the deadline. This will save your legal team a lot of time as they don’t have to keep updating your law firms manually and your finance team doesn’t have to keep chasing your legal team for the accruals. 

Accurate Submission

The challenge

It’s in everyone’s best interest for accurate accruals information to be submitted, particularly your law firm’s. This is because your general counsel may refuse to pay for a specific bill if the incorrect accruals information has been submitted. Accuracy can also be compromised if there is a disconnect with your law firms. Generally, law firms don’t internally record their own accruals as they don’t need that information in their own financial reports. Because of this information gap, a senior partner who is working on a particular matter may want to examine the time recording data before it actually gets sent to you. This interim step can cause the time recording data to not always equal the invoice amount. 

How to ensure its application

Make it as clear as possible to your law firms exactly what information they should be submitting within your legal billing guidelines. Law firms should also have the ability to input accruals information for previous months so they don’t amalgamate it with the current month. This will ensure an efficient and systemized process that prevents your legal team from having to continually input data into spreadsheets and it will mitigate the risk of potential inaccuracies. 

Timely Approval

The challenge

While low levels of manual work are often unavoidable, an accruals approval process that involves manually reviewing all of the information received is an inconvenience at best and inefficient at worst:

Your law firm sends you a spreadsheet containing your accruals information for the quarter via email, Legal (understandably) takes hours to review and approve the lengthy document, they flag any discrepancies with the law firm (which is likely to trigger a time-consuming email thread), and finally sends the approved accruals data to Finance (hopefully on time). 

This manual process can result in inaccurate information slipping through your workflows all the way to Finance that will stall the entire process and completely mess up the work that has already been done. 

How to ensure its application

Manually gathering all the accruals submissions from various email inboxes generates far more problems than utilizing an automated system to carry out the same function. A centralized platform will provide your legal team with full visibility and transparency on every open matter, making the approval process more efficient by reducing the level of manual input required for approvals. A legal operations professional should also perform a sense check on the accruals information that’s been submitted to make sure it’s accurate before it’s routed to Finance. 

Effective and Compliant Reporting

The challenge

Your finance team will be relying on your legal department and your law firms for accurate and up-to-date data for financial reporting. But if the accruals information you’ve collected is incorrect it can cause the legal department to go over (or under) budget, meaning you now have to contend with inaccurate reporting. And it’s possible that Finance might reject these faulty reports which will create additional challenges for your legal team. 

How to ensure its application

The data gathered by your finance team will likely be examined and validated by external auditors to figure out how it’s being captured, as well as its accuracy, reliability, and integrity levels. Communication between Finance and Legal will ensure both teams are aligned to allow for more compliant reporting. For example, your finance team will likely care about when the expenses were recorded, as opposed to when they were incurred (i.e. the date the invoice was submitted). Both teams should also be aligned on what requirements are needed for their reports and should consolidate any relevant company-wide accruals data as well. 

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