Client money is the foundation of solicitors accounts. Get it wrong and you're looking at regulatory trouble. Get it right and you protect your clients, your firm, and your reputation. Let's break down what counts as client money, how to handle it, and what the rules require.
Most Accounts Rules breaches involve client money. Understanding what counts as client money (and just as importantly, what doesn't) is your first line of defence. If you're ever unsure whether something is client money, the safe answer is yes - treat it as client money until you know otherwise.
Client money is any money you hold or receive for a client. It doesn't matter whether you're acting as their solicitor, trustee, executor, or stakeholder. If the money ultimately belongs to someone else and you're just holding it, it's client money. Simple as that.
When you're appointed as a trustee or executor, you're holding money on behalf of beneficiaries. This is client money even though there's no solicitor-client relationship in the traditional sense. You're still holding it for others, so the Accounts Rules apply.
A stakeholder is someone who holds money without taking a side in a dispute. The classic example is a deposit on a property purchase. You're holding it for whoever ends up entitled to it. Stakeholder money is always client money - it doesn't belong to you, and you can't use it for your own purposes.
Sometimes you hold money for people who aren't your direct clients. This could be for another solicitor, a court, or a third party beneficiary. If you're holding it for someone else's benefit, it's client money and must go into the client account.
The safe approach is always to treat questionable money as client money. Putting office money into a client account is inconvenient but rarely a breach. Putting client money into the office account is a breach. When uncertain, err on the side of client account.
When a client pays you for legal work, that money is client money until you've earned it. Whether it's money on account of future costs, payment for work already done, or funds to cover disbursements, it starts life as client money. Only once you've properly earned it can it become yours.
You've just settled a personal injury claim for £50,000. That cheque is made out to you, but it's not your money - it belongs to your client. It must go into the client account. Same with court awards, insurance settlements, or any compensation you receive on someone's behalf.
Sometimes another firm sends you money to hold or pass on. Maybe you're both acting on a matter, or they're closing a file and you're taking over. That money is client money - you're holding it for their client, even though that person isn't your direct client.
As an executor, you're holding the deceased's money for the beneficiaries. As a trustee, you're holding trust assets for the beneficiaries. Neither belongs to you or your firm - they're client money and must be kept in the client account until properly distributed or transferred.
Office money is money that belongs to your firm. This includes money you've legitimately earned through your work, profits the firm has made, and capital that belongs to the partners or shareholders. Once you've earned it, it stops being client money and becomes office money.
Here's the key moment: when you've done the work and you transfer the money from client account to office account, it becomes office money. That transfer represents your earned fees. Once it's in the office account, it's yours to use for running the business, paying staff, and so on.
The line between client and office money is where most problems occur. Transfer too early and you've taken money that isn't yours. Transfer too late and you're not running your business efficiently. Get the timing right and everyone is protected - clients keep what's theirs, you get paid what you've earned.
Office money (or "money belonging to the authorised body") is money that your firm owns. It's the firm's property, held for the firm's benefit. Once client money is properly transferred to the office account as earned fees, it becomes office money. The firm can then use it for any legitimate business purpose.
You hold office money in your office bank account. This is where you keep the firm's working capital, pay your staff, cover rent and overheads, and generally run the business. The office account is for firm money - no client money goes in unless you've properly earned it and are transferring it across.
Why does this matter? Because the rules are different. Client money has strict rules about how it's held, what you can do with it, and how you account for it. Office money has fewer restrictions because it belongs to the firm. Mixing them up is a breach and can put client funds at risk.
| Aspect | Client Money | Office Money |
|---|---|---|
| Who owns it? | Your client or third party | Your firm |
| Which account? | Client account only | Office account only |
| Can you use it? | Only for client purposes | For any business purpose |
| Rules? | Strict Accounts Rules apply | Fewer restrictions |
| Can you mix? | Never with office money | Never with client money |
When you receive client money, it must go into a client account - promptly. Not tomorrow, not next week, not when you get around to it. Promptly means without delay. This is non-negotiable. The SRA doesn't look kindly on firms that sit on client cheques to manage their cash flow.
In practice, promptly means the same day or the next banking day. If you receive a client cheque on Monday, it should be banked by Tuesday at the latest. There's no fixed time limit in the Rules, but delays of more than a day or two are hard to justify. Bank it, record it, move on.
Client money goes into the client account and stays there until it's properly paid out or transferred. It doesn't go into the office account "just for a moment" and it doesn't get mixed with firm money. The whole point of separate accounts is to keep client money clearly identifiable and protected.
It can be tempting to hold onto client money to keep the firm's balance healthy. Don't. Using client money as an interest-free loan or cash flow management tool is a serious breach. If the SRA finds you're routinely delaying banking client money, you're looking at disciplinary action.
If a client agrees to pay your costs and those costs aren't in dispute, you can deduct them from client money before repaying the balance. But the costs must be genuinely agreed - not just what you think you're owed. Get proper authority and keep clear records.
A lien is the right to keep someone's property until they pay what they owe you. In legal practice, you may have a lien over client money or papers if the client hasn't paid your bill. But liens are technical - don't assume you have one without checking the rules and your client care letter.
Some statutes specifically allow or require you to withhold money. For example, you might need to deduct tax before making certain payments, or a court order might specify that money should be held or paid in a particular way. Always follow the statutory requirements - they override general client money rules.
Don't withhold client money without clear authority. "I think I'm owed this" isn't enough. You need either the client's written agreement, a valid lien, or a statutory basis. If you withhold without proper authority, you're effectively misappropriating client funds - a serious matter.
You must repay client money when the client is entitled to it. This might be when you complete the matter and return unused funds, when a client instructs you to pay money out, or when a third party becomes entitled to the money. The key is: when the right to payment arises, pay promptly.
Sometimes it's obvious who to pay - your client instructs you, and you pay them. Other times it's less clear. Estate funds go to beneficiaries. Trust funds go according to the trust terms. Court awards go to the successful party. Take care to identify the correct payee - paying the wrong person is a breach.
You can make part payments if that's what's required - perhaps paying a beneficiary their share while other beneficiaries are still being identified. But keep clear records of what you've paid and why. When you make a final payment that closes the file, get proper acknowledgement and discharge.
Clients notice when you're quick to return their money. It builds trust and shows you're not hanging onto their funds unnecessarily. Prompt repayment is both a rule and good client care. When money is due back, don't sit on it - get it paid.
When client money arrives, you need to record it in two places: the cash book (which tracks the bank account) and the client ledger (which tracks how much you're holding for each client). This double recording is the foundation of solicitors accounts - it's how you keep track of everything.
In the cash book, you record the receipt in the client bank receipts column. This shows that money has come into the client account. The cash book is your chronological record of all bank transactions - every receipt, every payment, in date order.
In the client's ledger, you credit the account with the amount received. This might seem backwards if you're used to banking terminology, but in client ledgers, a credit increases the balance you're holding for the client. The ledger shows exactly how much of that client's money you have.
| Transaction | Cash Book Entry | Client Ledger Entry |
|---|---|---|
| Receive £5,000 from client Smith | Client bank debit +£5,000 | Smith ledger credit +£5,000 |
| Receive £10,000 damages for Jones | Client bank debit +£10,000 | Jones ledger credit +£10,000 |
| Receive £2,000 from other firm | Client bank debit +£2,000 | Client ledger credit +£2,000 |
Get into the habit: money in = two entries. One in the cash book (tracking the bank), one in the client ledger (tracking the client's balance). If you only record in one place, your accounts won't balance and you won't be able to reconcile. The double entry system protects you and keeps everything accurate.
When you pay money out of the client account, you again make two entries. In the cash book, you record the payment in the client bank payments column. In the client ledger, you debit the account (which reduces the balance you're holding for them). The two records always move together.
When you've earned your fees and transfer money from client to office account, this is where it gets interesting. You credit the client bank (money leaving client account) and debit the client ledger (reducing their balance). Simultaneously, you debit the office bank (money arriving) and credit the office ledger for that client (recording the income).
Every transaction follows the same pattern: at least one debit and at least one credit. For client account transfers, you're actually making four entries - two for the client side (cash book and ledger) and two for the office side (cash book and ledger). It keeps everything in balance and provides a complete audit trail.
| Transaction | Cash Book | Client Ledger | Office Ledger |
|---|---|---|---|
| Pay £3,000 to client | Client bank credit -£3,000 | Debit -£3,000 | None |
| Transfer £1,000 to office | Client bank credit -£1,000, Office bank debit +£1,000 | Debit -£1,000 | Credit -£1,000 |
| Pay £500 to third party | Client bank credit -£500 | Debit -£500 | Debit +£500 (if disbursement) |
You're acting for a buyer in a property purchase. They send you a £10,000 deposit. You pay it into your client bank and record it in the cash book (client bank debit). In the client ledger, you credit £10,000. The ledger now shows you're holding £10,000 for that client. When completion happens, you'll pay it out to the seller's solicitor.
You need to pay £200 to the Land Registry for a search. The money comes from your client's funds. You record the payment in the cash book (client bank credit) and debit the client ledger for £200. The client's balance reduces by £200, reflecting that you've used their money to pay their expense.
You've completed work worth £1,500 and the client has agreed to pay. You transfer £1,500 from client to office account. Cash book: client bank credit £1,500, office bank debit £1,500. Client ledger: debit £1,500 (reducing their balance). Office ledger: credit £1,500 (recording your earned fees). You've now been paid.
Think of client money as temporarily in your care, but never yours. You're a guardian, not an owner. This mindset helps you make the right decisions automatically. If it's not yours, you don't use it for your benefit. You protect it, account for it, and return it when the time comes. Simple as that.