Trust Accounting and the Negative Nellies
Who is Negative Nellie? It could be argued that many attorneys would know, especially while representing some rather over-the-top-disgruntled clientele. In addition to the attitude of that particular client, any client who also has a negative balance on their trust account could be considered “negative” as well. LOL! 😉
According to Pedro Chopite, an English enthusiast and Quora contributor, Negative Nellie was derived in 1966 when,
“President Johnson spoke of “Nervous Nellies” to refer to critics of his Vietnam policy, and the phrase caught on. Nervous Nellie acquired the connotation of “naysayer” and gave rise to similar terms like Negative Nellie, Naysayer Nellie, Negative Ned, and Negative Nancy.”
Positivity can take some effort though….. Don’t you think?
I’m not just talking about the thinking positive “mindset” part. Though I recommend that as a best practice.
Law Firm accounting requires that you pay close attention to the details in a trust account. Any client trust account with a negative balance must be investigated. Remember, the trust retainer is a prepayment. You cannot record a negative prepayment. If the retainer has been exhausted, the client must be asked to replenish it. But it should not be negative. A negative trust balance will require some investigation as to why the balance is showing incorrectly in LeanLaw and in QuickBooks. Here are several accounting errors that will cause this issue:
- Client bounces a check
- Payment is recorded but not deposited in the bank
- Disbursement on uncleared funds
- Multicurrency transactions
- Errors in the accounting
While you may be pretty good at figuring those exclusions, errors in your accounting can be time-consuming to correct and costly to sort out. Bookkeepers experienced in law firm accounting, specifically trust accounting, have a trained eye for examining the data to keep it nice and tidy and fix errors when things go sideways.
In the example in the video below, Michael Bennett, our client gave us two retainer payments. There were two invoices to Michael for legal services rendered. Then there was a large disagreement and the attorney of record decided to refund all the money back to the client. In this particular scenario, we would need to do an entry to reverse the two sales transactions where the attorney billed for legal services and move the funds back to the trust account from the operating account to make the total retainer whole again.
Apart from dealing with errors efficiently, keeping your trust accounts balanced is necessary to a law practice that’s seeking to grow. As I mentioned in the Work in Process – Law Firm Accounting article, being able to produce reports like WIP or accounting of all unbilled time can be of huge value. It is one of my favorite reports in my preferred time and billing app for attorneys, LeanLaw. Staying on top of when it’s time to bill a client is essential to a profitable law firm. Law firms should strive to invoice all of their outstanding WIP fees on a monthly basis. Any WIP fees should not remain outstanding for more than thirty days.
Your client may not be a Negative Nellie when it comes to attitude or mindset, but even if they are “negative” on the balance sheet finding the issue and correcting it is part of the job or task at hand as the accountant or bookkeeper. Keeping great trust records is the number one reason you would hire a professional to be sure your records are compliant. If you are an attorney and know that your records are not in good order, we would love to work with you and keep the cash flow flowing and keep your records pristine! Call us today at 239-349-2004.
Visit me on Facebook in QB Community Live! It’s a public group, where you can find me and a lot of other genius accounting professionals too. QB Community Live! is fun and friendly. Use #trustnellie so I know it’s you, and please invite your bookkeeper to do the same!