Client accounting. At first, the concept seems straightforward: Client money connected to an underlying legal service\u2014whether it\u2019s money for unearned fees (typically paid as a retainer), conveyancing, settlement funds, or the administration of estates\u2014is not yours, so keep it in a separate account to avoid accidentally spending it. Simple, right?<\/p>\n
In practice, client accounts can be quite complex. Lawyers are responsible for navigating the Solicitors Regulation Authority\u2019s (SRA) rules pertaining to client money and accounts<\/a>, plus a system of banks that may be unlearned of said rules. If your firm improperly handles client money\u2014whether intentionally, accidentally, or through neglect\u2014you and your firm could put your clients\u2019 money in danger, face disciplinary action<\/a>, and even risk being struck off.<\/p>\n This guide offers points to consider for client accounting at your law firm, so you can better protect your clients\u2019 money\u2014and your firm.<\/p>\n\n\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\n\t\t\t\n\t\n\t\t\t\t\n\t\t\t\n\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\n\t\t\t\n\n What makes a client account different from an office or other account operated by you or your firm?<\/p>\n Basically, the SRA Accounts Rules<\/a> outline that if you hold or receive client money, you\u2019re required to keep one more client accounts at a bank or building society (of which the branch or head office is located in England and Wales).<\/p>\n There are two types of client account that your firm could keep:<\/p>\n When it comes to opening an account, you are obligated to follow essential instructions designated by SRA Account Rules<\/a>.<\/p>\n In all instances, the name of the account must \u201cinclude the word \u2018client\u2019 in full (an abbreviation is not acceptable)\u201d. You must also consider the size and status of your firm when naming a client account:<\/p>\n And, if the account is a separate designated client account, then its title should also make reference to the identity of the client, other person, or trust.<\/p>\n As a solicitor, you are ultimately responsible for keeping client money safe from misuse<\/a>\u2014so it\u2019s essential that your firm has and maintains good systems and checks. Here are some best practices to contemplate when handling client money:<\/p>\n While this point may seem obvious, it merits repeating, as it\u2019s a core tenet of client accounting: You (and your staff) must never use your client account as a banking facility.<\/p>\n As Rule 3.3. states<\/a>, \u201cYou must not use a client account to provide banking facilities to clients or third parties. Payments into, and transfers or withdrawals from a client account must be in respect of the delivery by you of regulated services.\u201d<\/p>\n Preventing client accounts from being used as a banking facility<\/a> is crucial to protecting clients\u2019 money\u2014and your reputation<\/a>. Circumventing SRA rules in this area puts your firm at risk of assisting money laundering, improperly hiding assets, or being exposed to fraud.<\/p>\n While you may pride yourself on properly handling client money, the responsibility for protecting your clients\u2019 money goes beyond your individual actions. It\u2019s important to carry out due diligence when recruiting potential employees to keep fraudsters<\/a> away from your firm (and your client accounts).<\/p>\n Even honest staff can make mistakes, too. Prioritise training, supervision, and clear communication with staff that interact with client accounts.<\/p>\n You should also strategise to avoid unintentional blunders that can occur with accounting staff comings and goings\u2014ensure your firm has a business succession plan and contingency plans.<\/p>\n Account management and audit systems are key to preventing errors with client accounts and keeping SRA compliant<\/a>. For example, you should have a method to record client account transactions, and an accounting system in place to prevent accidentally overdrawing from client accounts.<\/p>\n If client account mistakes occur, report them quickly by having systems and checks in place. When it comes to protecting client money<\/a>, the SRA recommends that you \u201creconcile accounts that are signed off by the compliance officer for finance and administration at least every five weeks.\u201d<\/p>\n Having strong IT systems with good backups is integral to protecting your clients\u2019 money and data\u2014this is especially important in an era where cyberattacks often target law firms<\/a>.<\/p>\n When all else fails, communicate any potential concerns with the SRA. If money is stolen from a client account\u2014whether by staff at your firm or via a cyberattack\u2014you must promptly report it to the SRA.<\/p>\n Let\u2019s keep it simple: The client account is for client funds only. The office account is the law firm\u2019s money. Period.<\/p>\n For a typical monthly retainer situation, you will take the client\u2019s retainer amount and put it into your client account. After each billing cycle, you calculate what is owed by the client to the firm and transfer that amount from the client account to the office account. If the retainer runs low, you ask the client to replenish the client account. If there are any client funds left when the case is wrapped up, they are refunded to the client.<\/p>\n And for cases where large payouts happen\u2014your typical personal injury settlement, for example\u2014you take the settlement funds, put them in a client account, then satisfy any liens (medical bills, etc.). You pay yourself the contingency fee, of course, plus any costs. Then you reimburse the client for whatever is left.<\/p>\n If you follow the aforementioned procedures, and familiarise yourself with the SRA\u2019s rules, you should avoid issues with client accounts and misuse of client money<\/a>.<\/p>\n When it comes to lawyers handling client money, most misuse occurs as a result of one of the following types of situations:<\/p>\n If a mistake does happen, your best course of action is likely to self-report the mistake to the SRA and immediately correct it.<\/p>\n Accounting is probably the worst part of running your own law firm, but there are tools that can help make the process more manageable.<\/p>\n Many lawyers turn to Intuit QuickBooks<\/a> or Xero<\/a> for managing their accounting and recordkeeping, rather than Excel spreadsheets. QuickBooks and Xero integrate with Clio\u2019s case management software<\/a>, which helps save time on data entry.<\/p>\n Klyant<\/a>\u2014a comprehensive, cloud-based<\/a> legal accounting application for European law firms\u2014is built specifically to make it easier to manage client accounts for legal practices. With Klyant, trust or client money is managed separately from firm money\u2014allowing for simple compliance with regulations. Klyant also provides a suite of management and financial reports, helping your firm better monitor growth and remain compliant.<\/p>\n Now that you\u2019ve read far too much on client accounting, and after you have checked your local rules, what do you do next? Put this information to work for client accounting in your own firm:<\/p>\n It may seem like a lot to handle, but nobody ever said entrepreneurship and managing a practice were easy. With client accounts, like all things, once you put good habits into practice, they become second nature over time.<\/p>\n \n Client accounting. At first, the concept seems straightforward. In practice, client accounts can be quite complex. <\/p>\n","protected":false},"author":24,"featured_media":6569,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[12,29],"tags":[],"coauthors":[46],"class_list":["post-6890","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-accounting","content_category-collections","content_category-firm-performance","content_category-law-firm-operations","content_category-legal-billing-process","content_category-regulation-compliance"],"acf":[],"yoast_head":"\nWhat is a client account?<\/h2>\n
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Opening a client account<\/h2>\n
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6 best practices for client accounts<\/h2>\n
1. Know that a client account is not a banking facility<\/h5>\n
2. Staff your firm thoughtfully<\/h3>\n
3. Establish accounting systems<\/h3>\n
4. Reconcile accounts regularly<\/h3>\n
5. Keep your technology current<\/h3>\n
6. Make use of the SRA<\/h3>\n
Difference between client and office accounts<\/h2>\n
Client accounting and ethics<\/h2>\n
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Tools to help with client accounting<\/h2>\n
Putting it all to work<\/h2>\n
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Note: The information in this article applies only to UK practices. This post is provided for informational purposes only. It does not constitute legal, business, or accounting advice.<\/h5>\n
Improving Payment Collections in Your Law Firm<\/h2>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t<\/div>\n<\/div>\n<\/p>\n","protected":false},"excerpt":{"rendered":"