Work in progress (WIP)

Work in progress (WIP) is work you've performed for a client but haven't yet invoiced: it's been carried out, but is still in progress from a billing perspective.

Tracking WIP and how it develops matters for a few reasons:

• Fiscal: you're required to recognize profit on a rolling basis, meaning the profit tied to a period's work must be taken in the period the work was done. At each year-end, you need to determine your WIP position and record the change from the previous year as profit or loss.
• Cash flow and debtor risk: you'll generally aim to keep WIP as low as practical. Tracking how it develops helps with that.

Tools

Legalsense offers a few ways to see WIP.

Search time entries and matters

In Timesheet → Search, filter by Billing status: Work in progress to find time entries that are still in progress, and narrow the results further by timekeeper, matter, or time period. Click Search to see the matching entries, with an expected value shown at the bottom. On a matter, the Work in progress section shows the total WIP in hours and amount, and links through to the underlying time entries.

Reports

In Reports → Reports, you can build overviews that combine time entries and group them by time unit, matter, and/or timekeeper. Use the Time and fee, billed and unbilled report type to report on unbilled time. The other report type is based on invoices, so it doesn't apply here, since WIP by definition hasn't been billed.

Set the following filters when editing the report's structure:

• Realization: billable
• Billed: false

You can also filter on a specific period. It's also worth setting up one or more groupings, for example by matter, by timekeeper, by matter supervisor, or by period.

Legalsense values time entries in several ways, each reflected as a column in the report. The following columns matter for WIP:

• Work in progress: the current value of WIP.

Legalsense values WIP based on the rate set on the matter, the same rate used when the invoice is created. This means the WIP value matches what you'd bill if all of it were invoiced, excluding office expenses. Time entries marked not billable, or entered at a zero rate during time entry, aren't included in the WIP value. On a fixed-fee matter, total WIP never exceeds the fixed fee amount: time entries are valued at the standard hourly rate until the fixed fee amount is reached, after which further entries are valued at zero.

Time entries on draft invoices still count as WIP. Changes to their value, for example from adjusting an amount on the invoice, are reflected in the WIP position as much as possible while the invoice remains a draft.

Once a time entry is finally billed, its WIP value drops to zero, and it no longer shows a value in the Work in progress column.

A few other columns don't reflect the current WIP value, but a value calculated under specific conditions instead. Use them as an alternative basis for valuing WIP, or to compare against the current WIP value. Unlike the Work in progress column, these columns show a value regardless of whether the time actually counts as WIP. With the filters above applied, you can use their results as a WIP basis too.

• Expected amount before write-offs: close to the current WIP value, except that time entries written off directly keep the value they had before the write-off. This only covers write-offs made at the time entry level, by selecting not billable or by writing off entries on a draft invoice; time entries logged at a zero rate are still valued at €0 here. Comparing this column to Work in progress shows how much has been written off directly. Comparing it to the Billed column, in a report that includes more than WIP, shows how much has been written off in other ways too.
• Expected amount hourly rate: the timekeeper's standard hourly rate multiplied by the time logged, excluding any client- or matter-specific rate. Use it as an office-wide benchmark.
• Expected client rate amount: the client's general rate multiplied by the time logged, excluding any matter-specific rate; zero-rate lines and write-offs aren't included. Use it as a benchmark against matter-specific rates.
• Time: the time in minutes or hours, for reference alongside the other columns, or as a basis for calculating an average hourly rate, also available as its own column.

With the filters above applied, the Total excluding office expenses and Total columns will match the Work in progress column.

Recalculations

Many things can change the value of WIP: rate or price template changes at the client or matter level, changes to a timekeeper's standard rate, edits to a draft invoice, and so on. For technical reasons, not all of these are reflected immediately, but WIP is updated overnight regardless. Billing always recalculates the value of time entries using the latest rates and settings at that moment.

The Expected… columns are also updated nightly, until the time is finally billed. After that, they no longer update for later rate changes.

Dashboards

Dashboards give you a quick overview of the most recent WIP by user, team, or office. In practice, they're mainly useful for a quick check, not as the basis for a formal WIP report.

Reporting: always up to date

Legalsense's searches and reports always reflect the current state of affairs. This is core to how the system works, and timekeepers and partners often appreciate it: you get a daily view of how the firm is doing, without manual work.

Note: This can be confusing from a financial perspective, because Legalsense doesn't currently report on when a value changed. For WIP specifically, this means the WIP position shown for a period is always the latest known position for that period. From an accounting perspective, you sometimes need to answer a different question: what was the WIP position for a certain period, as of a certain date? For example, what was the 2021 WIP position on 31 December, the year-end, or on 14 April, when the financial statements were adopted?

Freezing a report

To answer that question, freeze a report: Legalsense saves a snapshot of the report as it is at that moment. You can freeze a report yourself, or automatically on a schedule, for example on the last day of the year. Frozen versions are kept under History on the report, so you can see how WIP developed over time. To download a frozen version, open it and click Export. See the article ↪ Freezing reports.

Integration with accounting

Standard integration

Determining the value of WIP isn't only a numbers question. It also involves a judgment call: is the work still genuinely in progress, or should it reasonably be written off? Year-end is the natural point to make that call.

For that reason, the integration between Legalsense and Twinfield or Exact Online, and the various exports to other accounting packages, don't post automatic entries for WIP. Sales invoice entries don't run through WIP: each sales entry books directly as accounts receivable to sales.

This keeps the setup simple. You don't need period closures in Legalsense, the number of bookings in your accounting system stays low, and it matches one-to-one with your sales invoices. The manual entry you make once per period, usually once a year, is the natural conclusion to that setup. There are two standard ways to make this entry.

Determination at year-end

The simplest approach is to freeze a comprehensive WIP report on 31 December, or your other year-end date; you can automate this with the schedule described above. Transfer the report's balance directly to your accounting software as a correction entry to WIP, by subtracting the balance as of 1 January. Add any valuations or provisions you need at that point.

Subsequent determination

Sometimes determining WIP as of 31 December isn't practical, for example because:

• Time isn't logged daily, so the balance isn't yet known on 31 December.
• You want to be consistent with prior years, where the determination was also made later, for example on 1 April.
• Waiting gives you more information about what's actually billable, for a fairer valuation.

In this case, you can still determine the 31 December WIP position retrospectively, as of a later reference date, by adding two amounts:

• The WIP position as of the reference date, with any provisions or corrections applied. This follows the same approach as "determination at year-end," just at a later date.
• The total value billed, up to the reference date, for work performed in the previous year. This figure usually needs no correction: because it's already billed, it's an exact value rather than an estimate, aside from any later credits.

Alternative: sales entries running through work in progress

You can also set up the Legalsense-Twinfield integration to book sales through WIP. In this setup, sales are automatically booked to WIP at regular intervals, and then from WIP to debtors as they're billed.

Because this generates a large number of automatic entries, it can be harder to keep an overview, and there's no single, clearly defined revaluation moment, unlike an annual or monthly manual entry. Still, for larger firms this can be a good fit. Contact Legalsense to discuss the options.