Key Takeaways:
- The Undeposited Funds account is your secret weapon for grouping multiple invoice payments into a single bank deposit that matches your actual bank statement
- Law firms face unique challenges with deposit matching due to trust accounting requirements, partial payments, and clients who pay multiple matters with one check
- Proper workflow and technology can eliminate hours of manual reconciliation and prevent compliance violations that could result in disciplinary action
It’s 4:30 PM on a Friday. You’ve just returned from the bank after depositing five client checks totaling $23,847. Now you’re staring at your QuickBooks bank feed, wondering how to match this single deposit to the seven different invoices these payments cover. One check pays two invoices in full. Another covers three matters partially. And don’t even get started on that trust account transfer that needs to be applied correctly.
Sound familiar? You’re not alone. This scenario plays out daily in law firms across the country, turning what should be a simple accounting task into a time-consuming puzzle that can derail your entire reconciliation process.
The challenge isn’t just about bookkeeping efficiency. When law firms can’t properly match deposits to invoices, it creates a cascade of problems: inaccurate financial reports, confused clients questioning their balances, potential trust accounting violations, and hours of wasted time trying to untangle the mess during month-end reconciliation.
But here’s the good news: with the right approach and understanding of QuickBooks’ capabilities (and limitations), you can master the art of deposit matching. This guide will walk you through proven strategies that mid-size law firms use to streamline their deposit processes, maintain compliance, and actually leave the office on time on Fridays.
Why Law Firms Struggle with Deposit Matching
Before diving into solutions, let’s understand why this seemingly simple task becomes so complex for law firms.
The Unique Nature of Legal Payments
Law firms don’t receive payments like other businesses. Consider these common scenarios:
Multiple Matter Payments: A corporate client sends one check for $50,000 covering:
- Invoice #1247 for the merger matter ($22,500)
- Invoice #1251 for the employment dispute ($15,000)
- Invoice #1256 for the trademark filing ($8,500)
- A $4,000 advance for future work
Partial Payment Complexity: An estate client pays $10,000 toward a $25,000 invoice, but wants it applied:
- $3,000 to trust administration fees
- $4,000 to court filing costs
- $3,000 as a trust deposit for future work
Trust Account Complications: A personal injury settlement arrives for $100,000:
- $33,333 goes to attorney fees (operating account)
- $10,000 covers case expenses (reimbursement)
- $56,667 goes to the client (trust account)
The QuickBooks Challenge
QuickBooks wasn’t designed specifically for law firms. It expects simple scenarios: one payment, one invoice, one deposit. But law firm reality is messier. When you try to match that $23,847 bank deposit to seven different invoices, QuickBooks fights you every step of the way.
The bank feed shows one line item. Your invoices show seven. Without the right process, you’re stuck creating workarounds that may work today but create reconciliation nightmares tomorrow. This is where specialized legal billing software can make a significant difference.
Compliance Pressure
Unlike other businesses, law firms face severe consequences for accounting errors:
- Trust account violations can result in suspension or disbarment according to American Bar Association guidelines
- Commingling funds between clients is an ethical violation
- Inaccurate client ledgers violate state bar requirements
- Poor documentation fails audit requirements
This pressure transforms deposit matching from an accounting inconvenience into a compliance imperative.
QuickBooks Fundamentals: Setting the Foundation
Success starts with understanding how QuickBooks handles deposits and setting up your system correctly.
The Power of Undeposited Funds
The Undeposited Funds account is your best friend for matching multiple payments to one deposit. Think of it as your virtual deposit envelope—a holding area where payments wait until you’re ready to take them to the bank.
How it works:
- Record payments to Undeposited Funds (not directly to your bank account)
- Group payments together when creating the bank deposit
- Match the grouped deposit to your bank feed
Why it matters:
- Your deposit amounts match exactly what hits your bank
- Individual payments remain linked to their invoices
- Reconciliation becomes straightforward
Bank Feed Basics
QuickBooks bank feeds can automatically match transactions—but only if you set them up correctly:
Enable Smart Matching:
- QuickBooks looks for deposits with matching amounts
- It considers dates within a reasonable range
- It suggests possible matches based on patterns
The Three Options:
- Match: Links the bank transaction to existing QuickBooks entries
- Add: Creates new transactions in QuickBooks
- Transfer: Records movements between accounts
Common Setup Mistakes
Avoid these pitfalls that make matching impossible:
Recording payments directly to bank accounts: This bypasses the Undeposited Funds grouping ability
Inconsistent date entry: Payments recorded weeks after receipt won’t match
Wrong deposit accounts: Trust payments recorded to operating accounts create compliance issues
Duplicate entries: Adding instead of matching creates double-counting
The Step-by-Step Process for Perfect Matching
Let’s walk through the complete process using a real-world example.
Scenario: Friday’s Deposit
You’re depositing five checks totaling $23,847:
- Client A: $5,000 (Invoice #401)
- Client B: $8,500 (Invoices #402 and #403)
- Client C: $3,347 (Partial payment on Invoice #404)
- Client D: $4,000 (Retainer for future work)
- Client E: $3,000 (Final payment on Invoice #400)
Step 1: Record Individual Payments
For each check, create a payment in QuickBooks:
Navigate to the invoice:
- Go to Sales > Invoices
- Find the specific invoice
- Click “Receive payment”
Record the payment details:
- Customer: Select the correct client/matter
- Payment date: Use the check date
- Payment method: Check
- Reference no.: Check number
- Deposit to: Undeposited Funds (This is crucial!)
- Amount: Enter the payment amount
For partial payments like Client C:
- Enter only $3,347 even though the invoice is for more
- QuickBooks will show the remaining balance
- Add a memo noting “Partial payment – Check #2847”
For retainers like Client D:
- Don’t apply to an invoice
- Create a sales receipt instead
- Post to your Trust Liability account
- Still use Undeposited Funds for “Deposit to”
For a comprehensive guide on handling retainers, check out our article on trust accounting best practices.
Step 2: Create the Bank Deposit
Once all payments are recorded:
- Go to + New > Bank Deposit
- Select your operating bank account
- The “Select the payments included in this deposit” section shows all Undeposited Funds items
Check off the payments in this deposit:
- ✓ Client A – $5,000
- ✓ Client B – $8,500
- ✓ Client C – $3,347
- ✓ Client D – $4,000
- ✓ Client E – $3,000
Verify the total: $23,847
Add deposit details:
- Date: Your actual deposit date
- Memo: “Deposit 3/15 – Checks 2845-2849”
Click “Save and close”
Step 3: Match in Bank Feeds
When your bank feed updates (usually next business day):
- Go to Banking > Bank feeds
- Find the $23,847 deposit
- QuickBooks should show “1 record found” as a match
- Click “Match”
- Confirm the match
If QuickBooks doesn’t automatically find the match:
- Click the deposit in your feed
- Select “Find match”
- Search by amount: $23,847
- Select your deposit
- Click “Match”
Success Indicators
You know you’ve done it right when:
- ✓ Bank balance matches QuickBooks
- ✓ Each invoice shows correct payment
- ✓ Client statements are accurate
- ✓ No “Undeposited Funds” remain for these items
- ✓ Bank reconciliation shows the deposit cleared
Advanced Scenarios: When Deposits Get Complicated
Real law firm deposits are rarely straightforward. Here’s how to handle complex situations.
Scenario 1: One Check, Multiple Matters
Client sends $15,000 covering three invoices:
- Matter A: $7,500 (Invoice #501)
- Matter B: $5,000 (Invoice #502)
- Matter C: $2,500 (Invoice #503)
The wrong way: Applying the full payment to one invoice
The right way:
- Receive payment for Invoice #501 for $7,500
- Receive payment for Invoice #502 for $5,000
- Receive payment for Invoice #503 for $2,500
- All three payments reference the same check number
- All deposit to Undeposited Funds
- Group all three when making the deposit
Scenario 2: Trust to Operating Transfers
Client has $10,000 in trust and you’re billing $7,500:
Step 1: Create trust withdrawal
- Record expense/check from trust account
- Payee: Your firm
- Account: Trust Liability (specific client sub-account)
- Amount: $7,500
Step 2: Record operating deposit
- Create deposit to operating account
- Add line: Income account (fees earned)
- Amount: $7,500
Step 3: Apply to invoice
- Receive payment on invoice
- Deposit to: Operating account (already there)
- Match when it appears in bank feed
Scenario 3: Mixed Trust and Operating Deposits
Client pays $20,000:
- $12,000 for outstanding invoice
- $8,000 for trust retainer
Never do this: Deposit the full amount to operating and transfer later
Correct approach:
- Physically split the deposit at the bank
- Deposit $12,000 to operating
- Deposit $8,000 to trust
- Record payments to appropriate accounts
- Match each deposit separately
Scenario 4: Partial Payments Across Multiple Invoices
Client sends $10,000 to pay down three invoices:
- Invoice #601: $8,000 balance (pay $4,000)
- Invoice #602: $7,000 balance (pay $3,000)
- Invoice #603: $5,000 balance (pay $3,000)
Process:
- Open each invoice individually
- Receive payment for the allocated amount
- Use the same check number for reference
- Add memo: “Partial payment per client instruction”
- All to Undeposited Funds
- Create single deposit for $10,000
Troubleshooting: When Things Go Wrong
Even with the best processes, problems arise. Here’s how to fix common issues.
Problem 1: Deposit Not Available for Matching
Symptoms: Your bank feed shows a deposit but Find Match returns no results
Common causes:
- Payment recorded to wrong account (not Undeposited Funds)
- Date mismatch (payment date too far from deposit date)
- Amount mismatch (typo in payment amount)
- Payment already matched to different transaction
Solution:
- Run Deposit Detail report for the date range
- Verify payment recording method
- Check for duplicate deposits
- Undo incorrect matches and reprocess
Problem 2: Reconciliation Discrepancies
Symptoms: Bank reconciliation won’t balance after matching deposits
Diagnostic steps:
- Run Deposit Detail report
- Compare to bank statement
- Look for:
- Deposits added instead of matched
- Partial deposits not properly recorded
- Trust/operating mix-ups
Fix:
- Undo duplicate transactions
- Re-match properly
- Verify all payments in deposit are accounted for
Problem 3: Client Balances Don’t Match
Symptoms: Client statements show different balances than expected
Check these items:
- Payment applied to wrong matter
- Partial payment not properly noted
- Trust vs. operating allocation errors
- Date cutoff issues
Prevention:
- Always add clear memos
- Use consistent naming conventions
- Review before finalizing deposits
Problem 4: Trust Account Nightmares
Critical: Trust account errors can result in disciplinary action
Red flags:
- Negative trust balances
- Commingled deposits
- Missing three-way reconciliation
- Unclear audit trails
Emergency fixes:
- Stop all activity
- Print all reports
- Trace every transaction
- Correct with detailed documentation
- Consider professional help
Best Practices: Building Bulletproof Processes
Prevention beats correction every time. Implement these practices to avoid problems.
Daily Deposit Procedures
Morning routine:
- Print all checks received
- Create payment copies for records
- Prepare deposit slip
- Record all payments before leaving for bank
Documentation standards:
- Photo of each check
- Copy of deposit slip
- Bank receipt
- Payment recording confirmation
The Two-Person Rule: Have one person record payments, another verify before deposit
Learn more about optimizing your billing workflows to streamline this process.
Clear Communication Protocols
With clients:
- Request remittance details with payment
- Clarify matter allocation
- Confirm trust vs. operating split
Internal team:
- Standardize payment recording
- Document special instructions
- Flag unusual situations
Month-End Processes
Week 1 of month:
- Reconcile all bank accounts
- Review unmatched transactions
- Clear Undeposited Funds
- Run deposit reports
Verification steps:
- Compare deposit reports to bank statements
- Verify all payments properly applied
- Check client balance accuracy
- Document any adjustments
Audit Trail Maintenance
Every transaction needs:
- Clear description
- Supporting documentation
- Approval notation
- Cross-reference to deposit
Retention requirements:
- Keep deposit slips: 7 years
- Check copies: 7 years
- Bank statements: 7 years
- Reconciliation reports: 7 years
Technology Solutions: Working Smarter, Not Harder
While mastering manual processes is important, technology can transform your deposit workflow.
The Limitations of QuickBooks Alone
QuickBooks works for general business, but law firms need more:
- No automatic trust accounting safeguards
- Limited matter-level tracking
- No three-way reconciliation
- Manual payment allocation
How LeanLaw Transforms Deposit Processing
Legal-specific software bridges the gap:
Automated Payment Allocation:
- Payments automatically apply to correct matters using matter management features
- Trust deposits route to proper accounts
- Partial payments follow predetermined rules
Integrated Trust Accounting:
- Prevents negative trust balances with built-in safeguards
- Automatic three-way reconciliation
- Compliance reporting built-in
Streamlined Workflows:
- One-click deposit creation
- Automatic bank feed matching through QuickBooks integration
- Exception reporting for issues
Integration Benefits
When LeanLaw works with QuickBooks:
- Accuracy: Eliminate manual entry errors
- Speed: Process deposits 75% faster
- Compliance: Built-in trust safeguards
- Visibility: Real-time client balances with advanced reporting
ROI Calculation
For a 15-attorney firm processing 100 deposits monthly:
- Manual time: 20 hours/month
- With integration: 5 hours/month
- Time saved: 15 hours × $50/hour = $750/month
- Annual savings: $9,000 plus reduced errors
Compliance and Reporting: Staying Out of Trouble
Proper deposit matching isn’t just about efficiency—it’s about compliance.
Three-Way Reconciliation Requirements
Most states require monthly reconciliation of:
- Bank statement balance
- Trust account ledger in QuickBooks
- Individual client trust balances
Without proper deposit matching:
- These numbers won’t tie
- Audit trails break down
- Compliance violations occur
Client Trust Accounting
Essential rules:
- Never commingle client funds
- Maintain clear audit trails
- Provide accurate client statements
- Document every transaction
How proper matching helps:
- Each deposit clearly traced
- Client funds properly segregated
- Statements automatically accurate
- Audit trails intact
Documentation for Bar Audits
Auditors will request:
- Deposit slips matching bank statements
- Payment records matching deposits
- Client ledgers matching trust balances
- Clear explanation for any discrepancies
Your matching process provides all of this automatically
Red Flags to Avoid
Bar investigators look for:
- Patterns of negative trust balances
- Commingled deposits
- Missing documentation
- Unexplained discrepancies
Proper deposit matching eliminates these risks
Making It Work: Your Action Plan
Ready to transform your deposit process? Here’s your roadmap:
Week 1: Assessment and Setup
Day 1-2: Audit current process
- Document how deposits are handled now
- Identify pain points
- Count time spent on matching
Day 3-4: QuickBooks configuration
- Verify Undeposited Funds active
- Check bank feed settings
- Review account structure
Day 5: Team training
- Train on Undeposited Funds
- Practice deposit creation
- Review matching process
Week 2: Implementation
Start small:
- Process one day’s deposits using new method
- Document any issues
- Refine process
Scale up:
- Implement for all deposits
- Monitor for problems
- Adjust as needed
Week 3: Optimization
Review results:
- Time saved
- Errors reduced
- Team feedback
Fine-tune:
- Streamline workflows
- Add technology tools
- Update documentation
Week 4: Maintenance
Establish routines:
- Daily deposit procedures
- Weekly verification
- Monthly reconciliation
Continuous improvement:
- Regular process review
- Technology updates
- Team refreshers
The Path Forward
Matching bank deposits to multiple invoices doesn’t have to be the bane of your law firm’s existence. With the right understanding of QuickBooks’ capabilities, proper procedures, and smart use of technology, you can transform this daily challenge into a smooth, efficient process.
Remember:
- The Undeposited Funds account is your friend
- Consistency in process prevents problems
- Technology can eliminate manual work
- Compliance depends on accuracy
Start with one deposit. Master the process. Then scale up. Your future self (and your state bar) will thank you.
The firms that excel at the fundamentals—like deposit matching—build the foundation for growth. They spend less time on administrative tasks and more time serving clients. They avoid compliance issues that derail others. They make better financial decisions based on accurate data.
Which firm will you be?
FAQ: Deposit Matching for Law Firms
Q: Can I match one deposit to multiple invoices directly in QuickBooks bank feeds? A: Not directly. QuickBooks expects one-to-one matching. You must use the Undeposited Funds account to group multiple payments into one deposit, then match that grouped deposit to your bank feed.
Q: What if I’ve been recording payments directly to the bank account? A: Start using Undeposited Funds going forward. For past transactions, you may need to void and re-enter payments to fix reconciliation issues. Consider getting professional help if you have months of incorrect entries.
Q: How do I handle credit card payments that batch differently than checks? A: Credit card processors often batch daily. Create a separate deposit for each batch, matching the processor’s settlement report. Use the same Undeposited Funds process but group by processing date.
Q: What about ACH payments that arrive individually? A: ACH payments can be recorded directly to the bank account since they arrive as separate transactions. Match each ACH payment individually in your bank feed—no grouping needed.
Q: Should trust account deposits use Undeposited Funds? A: Yes, if you’re depositing multiple trust checks together. However, many firms prefer to deposit trust funds individually for clearer tracking. Follow your state’s requirements. Learn more about trust accounting compliance.
Q: How can I tell if a deposit was matched correctly? A: In Banking > Bank feeds, matched transactions show a green “In QuickBooks” tag. In your bank register, matched items have a “C” (cleared) status. Both should reconcile perfectly.
Q: What’s the biggest mistake firms make with deposit matching? A: Recording payments directly to bank accounts instead of Undeposited Funds, making it impossible to group payments to match actual bank deposits. This creates perpetual reconciliation problems.
