Accounts receivable: Client billing

March 1st, 2020

Cash flows into the business bank account as payment received for work done. In order to receive payment, legal practitioners need to report to clients the nature of work done and request payment. This requires debiting fees to client accounts and sending statements to clients, to inform them of what they owe. It is central to practice management that a clear distinction be made concerning client account balances. A client account simultaneously represents a trust creditor and a business asset: The legal practitioner owes the client the value of the trust ledger, while at the same time, the client owes the legal practitioner the value on the business account. This account may never reflect a trust debit balance, but a business debit balance is normal. The distinction is critical. Poorly managed accounts receivable drains the business of vital cash and leads to obligations, which cannot be met. Manipulating financial records to avoid value added tax (VAT) liability is a crime (see Africa Cash and Carry (Pty) Limited v Commissioner for the South African Revenue Service [2020] 1 All SA 1 (SCA)).

Accounts receivable defined

Accounts receivable represent the value of work done, for which payment has not yet been received. Legal practitioners provide credit to clients from the time the work is done, until payment is received. On any account, this outstanding balance may be composed of fees, for work done, any reimbursable expenses and disbursements incurred on behalf of the client. The total value of accounts receivable represents an asset in the business books, similar to the value of the business cash book, but legal practitioners can only spend the value of the cash book. It is imperative that accounts receivable be converted to cash as soon as possible.

An outstanding balance represents the total legal practitioners and own client cost to client for services rendered. Cumulatively, all these outstanding balances together amount to accounts receivable.

The balance of accounts receivable act as an indication of the outstanding value due to legal practitioners, while income represents the value of work done. Income, cash and accounts receivable are related, but have different values and meaning.

How do legal practitioners convert accounts receivable to cash?

Having done the work, the client must be informed of the cash value of the work done, with a request for settlement of the account. Client billing is the process where transactions are debited to client accounts, and these accounts are submitted to clients for payment.

Reports to clients may take the form of letters, e-mail or SMSes, with instant messaging applications, such as Whats­App also in use. These reports are typically narrative by nature, telling the client what the legal practitioner has done. Statements and invoices, and by extension bill of costs, are not narrative by nature. These are transactional documents, listing items and values. That transactions ought to be accurately and sufficiently narrated is required by common sense, accounting, auditing and legal practice. Simply billing a client for ‘fees’ is counterproductive and nearly meaningless. Specifying ‘fee consultation with client 45 minutes’ is both clear and accurate. Verbose detailing the contents of the consultation risks exposing confidential information in a standard accounting report and is generally a waste of space. Bear in mind that reports and letters are generally sent and received to the client, and may become part of the formal process, whereas client billing documents are a request for payment, typically handled through an administrative process.

Invoices and statements are accounting documents generated by the firm as part of its ordinary business activities and reflect accounting transactions. These are primarily sent by the firm to its own clients.


‘To invoice’ means to make up a list of items of work done, for which the client owes the legal practitioner. This implies that payments received are not reflected and there is no opening or closing balances. It simply states the nature of the work done, and the total value of those items the legal practitioner expects payment for. In the event of VAT registration, VAT particulars should also appear on this invoice. It should contain the words ‘tax invoice’, ‘VAT invoice’ or ‘invoice’.

This instrument makes it possible for the VAT registered client to recover input VAT on the services rendered.

An invoice is a once-off report, with no opening or closing balances, and typically has no reference to a trust balance. Using commercial accounting software reinforces this trend. Since legal mandates often extend over several months, multiple invoices are to be expected. Unfortunately, it is not uncommon to see firms come to a standstill at month end ‘while we invoice clients.’

An invoice, especially a VAT tax invoice, is typically a once off affair as far as the transactions contained are concerned.


A statement of account may reflect individual transactions, as well as opening and closing balances, often with an age analysis computing how the balance is calculated. Both business, trust and net balances may be expected.

Where invoices are issued, it may be necessary to also issue statements in order to properly account for trust transactions.

Statements are not unique and should be updated with current transaction information.

It is possible to reflect transactions in various degrees of detail. An itemised statement should reflect all transactions in great detail, duplicating the content of preceding invoices, while a non-itemised invoice may compress each invoice to a single line entry.

Bill of costs

Part of the legal process, and not a normal business activity, is the drafting and taxing of a formal bill of costs.

A bill of costs is a formal document at the end of the litigation process. It is intended to allow recovery by the successful party from the opponent. It is not typically used to recover a legal practitioner’s costs from their client. A bill of costs is not used for other types of work, such as conveyancing or commercial work.

Where a legal practitioner’s normal, routine statements and invoices to clients are typically at their own agreed tariff, a bill of costs is drafted in terms of a court order and on a specific scale: Party and party; or attorney and client scale. Only where the parties are contractually bound, may a bill of costs be taxed on a scale as between attorney and own client, it is generally not sound in law to recover same from third parties, on the grounds that the third party was not privy to the terms of the agreement.

Where a client has been billed and a subsequent bill of costs may be taxed on behalf of that client, certain rules apply.

Some of the most pertinent rules, to which such a bill of costs is subject, include:

  • In litigation matters, interim invoices and statements of account may be sent at any time. There is no restriction on submitting interim statements to clients. An unlimited number of such statements and invoices may be submitted.
  • A bill of costs may only be taxed under specific circumstances. Monthly bills submitted for taxation are not possible.
  • Where a client has been billed a certain amount for a specific item, the final item contained in the bill of costs is restricted to the same amount.
  • Where the client receives an invoice, including VAT, the rule in Thoroughbred Breeders’ Association of South Africa v Price Waterhouse [2001] 4 All SA 161 (A) makes it impossible to recover VAT from a third party where the client is entitled to recover that input VAT.
  • Formal taxation often results in a writ or warrant, and this is executed by the Sheriff.

A bill of costs should be seen as specialised legal work, much like drafting any other formal court document.

Debtor’s statement

A debtor’s statement of balance, commonly used in debt collection proceedings, is not a formal document in the same sense as a bill of costs. The content is often assessed by the clerk or registrar and while assessment is an administrative task, taxation is a formal, quasi-judicial final process. Taxation may override assessment. In addition, the debtor is liable for the capital debt due to the client, as well as allowed costs. The maximum scale to be recovered from a debtor would be attorney and client, as recovery of attorney and own client costs is not founded in law (see Aircraft Completions Centre (Pty) Ltd v Rossouw and Others 2004 (1) SA 123 (W)).

Regular statements and invoices are routine, administrative documents, which can be mass produced and sent by computer. Where an accounting software solution is implemented, care should be taken to ensure the accuracy of the transactions captured, allowing the bulk sending of statements and invoices at regular intervals. A cycle commencing with a pro forma invoice, subject to scrutiny and review, followed by a formal invoice and recurring monthly statements until settlement ought to facilitate billing and cash flow.  Drawing a file from a cabinet to verify receipt of payment and scanning a typed statement for e-mail transmission is simply not productive or economical.

Above: The value added tax invoice checklist is available for download from

Carl Holliday BProc LLB (NWU) is a non-practising legal practitioner in Pretoria.

This article was first published in De Rebus in 2020 (March) DR 7.

De Rebus