Revenue Distribution for Law Firm Partners

Transparent Revenue Distribution for Law Firm Partners

Karin Fiechter · Certified Public Accountant · Law Firm Blog

The clean allocation of incoming fee agreements to the partners involved using Excel is complex, time-consuming, and prone to errors. With our law firm management software timeSensor LEGAL 365, you can solve this problem effortlessly and elegantly with the Revenue Distribution module – up-to-date and fully automated.

It all starts with the rule

To ensure that revenue distribution runs automatically, a suitable rule is assigned to each Matter. Such a rule could, for example, look like this:

• The person who acquired the Matter receives 10% of the fee income as a bonus for 4 years
• The partner in charge of the Matter receives 15% of the fee income
• The remaining 75% are distributed based on the work performed

With the flexible rule manager of the law firm management software timeSensor LEGAL 365, you can define any distribution rules. The rule is assigned to the Matter with one click. This means the main work is already done.

No rule without an exception

Every invoice generated from the Matter automatically “inherits” the distribution rule defined for the Matter. And because life is full of exceptions, the distribution rule can also be individually adjusted for each invoice. The original rule in the Matter remains unchanged and will be applied again for subsequent invoices.

Rules can also be named and reused for later Matters. A click on the gear icon is enough to retrieve a saved rule. The icon next to the revenue account appears in blue as soon as the rule is active.

Dividing the pie

When a payment is posted, everything else happens automatically: the algorithm distinguishes between the reimbursement of expenses and the payment of fees. The distribution rule is then applied to the fee portion. Each beneficiary partner receives a transparent credit directly to their revenue account – immediately and up-to-date.

In this process, not only are the revenues distributed according to the rules, but the VAT is also correctly deducted from each partial amount. As a partner, you can see all credits and debits on your individual revenue account at any time – either as an account sheet in the accounting system or graphically prepared in the BI module.

Expenses, out-of-pocket costs, and similar service groups can, by the way, be excluded from the revenue distribution so that only the actual fee portions flow into the distribution algorithm.

Advance and Partial Invoices

Matters can often only be billed over time. Therefore, timeSensor LEGAL 365 also supports the revenue distribution of provisional invoices. This ensures that law firm partners – even if the final billing is still pending – are still appropriately compensated. When the final invoice is created, the credits generated based on the partial invoices are reversed, and the fee is correctly distributed in the end.

In the case of partial payments, the distribution is proportional – the algorithm automatically calculates how much each partner is entitled to at what time.

Cost Centers and Branch Billing

The Revenue Distribution module also optionally supports cost centers. Do you have different business areas or locations? By including cost centers, even complex scenarios can be transparently mapped with automatic revenue distribution.

A concrete case study: There are two locations, BLUE and RED, each with three practitioners. Since the locations support each other, it happens that practitioners from location BLUE work on Matters from location RED and vice versa. The entire distribution runs through the revenue account of the partner in charge of the Matter, while the cost center identifies the beneficiaries.

The services provided by practitioners from the other location result in a claim between the locations. For optimal transparency, the services of the external practitioners are duplicated, marked with a minus, and assigned to a neutral clerk. A credit is then created from these services, which serves as an accounting document based on which one location pays compensation to the other.

The result: In the accounting of the managing location BLUE, the bank payment minus the transfer to RED, full VAT, and the revenue shares of all persons involved appear. In RED’s accounting, only the incoming payment that was posted to the revenue accounts of the red practitioners is found. The evaluation of the cost centers finally shows the amounts to which each practitioner is entitled.

Automated revenue distribution ensures a transparent, fair, and reliable distribution of fee shares among the law firm partners.

Transparency Creates Trust

Through the transparent rule-based revenue distribution of timeSensor LEGAL 365, law firm partners always know the current status of the revenue shares to which they are entitled. With the BI module, the data can be graphically prepared so that each partner can view their balance on their personal dashboard at any time.

A personal revenue account is opened in the chart of accounts for each clerk to be compensated. Those who do not need a personal account – such as associates – receive a general revenue account (partnership pool). The assignment is made under Settings – Basic Data – Clerk. This way, every share ends up exactly where it belongs.