PLACEMENT OF CLIENT/ BUSINESS FUNDS Flashcards
3
CLIENT FUNDS GENERALLY MUST BE PAID INTO CLIENTACCOUNT PROMPTLY
client money must be paid promptly into a client account and must be held in the client account. Again, ‘promptly’ likely means the day of receipt or the next working day.
Exceptions
There are of course some exceptions to this general rule, such as in the following cases:
1. A solicitor holds the money as a trustee or as the holder of a specifed office or appointment and paying the money into the client bank account would conflict with their obligations relating to that office or appointment;
2. The client money represents payments received from the Legal Aid Agency for the frm’s costs; or
3. An alternative arrangement has been agreed in writing with the client or third party for whom the money is held.
Placing Business Money in Client Accounts
*To open the client bank account or to maintain it at an agreed level;
*To provide funds to make a payment on behalf of a client or trust, in excess of funds held for that client or trust;
*To replace any sum which has been incorrectly withdrawn;
*To allow money in lieu of interest on client money; or
*Under Rule 4
DEALING WITH MIXED RECEIPTS
When a frm receives a cheque that contains both business and client funds, Rule 4.2 requires that funds received from mixed payments are allocated promptly to the correct client account or business account. There are several ways of do-
ing this.
Exam Tip
Be wary of answer choices on the exam that state a frm **‘must’ deal **with mixed receipts in a certain way. This choice will be incorrect as the frm may deal with mixed
receipts in more than one way.
Option 1—Split the Cheque
Suppose a frm receives a cheque from a client for £200. Partof the cheque (£50) is meant to reimburse the business for a
sum it paid out on behalf of the client and the other £150 is tobe held on account of any future costs incurred on behalf of the client. The frm would pay £50 into the business account and
£150 into the client account. The entries would be as follows:
*Credit £150 client ledger client account
*Debit £150 cash sheet client account
*Credit £50 client ledger business account
*Debit £50 cash sheet business account
Option 2—Deposit in Either Client or
Business Account and Transfer
As the frm’s bank may refuse to split the cheque, the second option (and the one most likely to appear in the SQE) is to
pay the entire amount into one account and transfer relevant amounts promptly to the other account. The frm can choose whether to initially pay the money into the client or business bank account
When Some Written Notification of Costs
Has Already Been Sent
- It used to be common for firms to send clients a bill for** profit costs, paid disbursements, and unpaid disbursements which the firm anticipated incurring. When the client paid such a bill, the firms would place all the money in their business account. **
- However, because money in the business account could disappear if, for example, the firm went insolvent, the SRA has indicated that in the vast majority of cases, money received to cover unpaid disbursements should be placed in the client account.
DEALING WITH TRANSFERS BETWEEN
CLIENT ACCOUNTS
A solicitor will hold money for various clients. On occasion, a particular client may request that money that is being held for
that client is transferred and held for another client which the firm is acting for. Client X would request in writing that a sum of
money be placed into Client Y’s account.
ENTRIES
*Debit client ledger of Client X (client account)
*Credit client ledger of Client Y (client account)
