The client account is where client money lives. It's a special bank account that exists solely to safeguard funds belonging to clients. Understanding how the client account works, what you can and can't do with it, and how to record transactions properly is essential for every solicitor.
Think of the client account as a safe deposit box for other people's money. It's not yours, you can't use it for your purposes, and you have to account for every penny that goes in and out. Get this right and everything else follows.
A client account is a bank account used solely to hold client money. It's where you pay in funds that belong to clients and make payments from when those funds need to go out. The account exists to protect client money by keeping it separate from firm money.
You can have designated client accounts for specific clients or matters, or a general client account that holds money for multiple clients. Designated accounts are useful for large or complex matters. General accounts are more common and efficient for routine practice.
Client accounts must be clearly identifiable as such. The account name should include words like "client" or "clients" to make it clear this isn't a normal business account. This clarity helps bank staff, accountants, and anyone else reviewing the records understand the account's purpose.
The client account is not a substitute for a proper business bank account. Don't pay firm expenses from it, don't receive firm income into it, and don't use it for general banking operations. Using it for anything other than client money is a breach of the Accounts Rules.
A designated client account is used for one specific client or matter. The account name identifies that client. Designated accounts provide clarity and make it easy to track specific client funds. They're often used for property transactions, estates, or litigation with large sums involved.
A general client account holds money for multiple clients and matters. Each client's money is tracked separately in the client ledgers, but it all sits in one bank account. This is more efficient and is the standard approach for most solicitors' firms.
Many firms have one general client account for day-to-day business and set up designated accounts for specific large matters. There's no rule saying you can only have one client account. The key is that all client accounts must follow the same rules and be properly reconciled.
| Factor | General Client Account | Designated Client Account |
|---|---|---|
| Number of clients | Multiple clients mixed | Single client or matter |
| Bank charges | Lower (fewer accounts) | Higher (more accounts) |
| Clarity | Relies on ledger records | Clear from bank statement |
| Best for | Routine practice | Large/complex matters |
Client money and firm money must never mix. This means firm money can't go into the client account, and client money can't go into the office account (except when properly transferred as earned costs). The separation is absolute and non-negotiable.
Separation means both separate bank accounts and separate accounting records. The client bank account is different from the office bank account. Client ledgers track client money, office ledgers track firm money. The two systems don't mix except at the point of proper transfer.
Separation protects clients because their money is always identifiable and can't be used for the firm's purposes. It protects the firm because there's a clear audit trail showing exactly what was done with client funds. It protects the profession by maintaining public trust in solicitors.
Imagine each client's money is in a sealed envelope in a safe deposit box. You can move the envelope from client to office when you've earned it, but you can never open the envelope and use the contents for your own purposes. That's how the client account works.
The SRA Accounts Rules prohibit using client accounts to provide banking facilities. This means you can't use the client account as a convenience service for clients or do things that banks normally do. The account is for safeguarding money related to legal matters, not for general banking.
Client accounts must never be overdrawn. An overdraft means you've spent client money you don't have - that's using client funds as credit. This is a serious breach. If the client account goes overdrawn, even accidentally, you must correct it immediately and report the breach.
You can't lend money to clients from the client account, and you can't use it to provide credit facilities. The client account is for holding client money, not for creating loans. If a client needs a loan, that's a banking transaction - not something you do through the client account.
The SRA treats the banking facilities rule very seriously. Breaches can lead to disciplinary action and may require remediation with affected clients. If you're not sure whether something is permitted, the answer is probably no - don't do it.
The primary purpose of the client account is to receive and hold client money. When a client pays you money, it goes into the client account and stays there until it needs to go out. You're safeguarding it - that's your role.
You can pay money out of the client account to clients when they're entitled to it, and to third parties on the client's behalf (like paying a search fee or court fee). These payments must be properly authorised and related to the legal matter you're handling.
When you've earned your fees and the costs are agreed or not disputed, you can transfer money from client to office account. This is how you get paid. The transfer represents costs you've legitimately earned through your work.
Money can only leave the client account for proper purposes. This means payments to clients, payments to third parties on the client's behalf, or transfers to office account for earned costs. Every withdrawal must be authorised and properly recorded.
When you've done the work and your costs are agreed or not disputed, you can transfer money from client to office account. This is how you get paid. The transfer must be for an amount you've genuinely earned, not just what you'd like to take out.
You can pay third parties from the client account when it's part of the legal matter - court fees, search fees, expert fees, and so on. The client should have agreed to these expenses, and the payments should be necessary for the matter you're handling.
Don't make withdrawals from the client account without clear authority. For client payments, you need their instruction. For third-party payments, you need client agreement. For transfers to office, you need earned costs. Without proper authority, a withdrawal is a breach.
The SRA requires that client account signatories be appropriate people. This typically means partners, directors, or senior staff who have been properly vetted. Not everyone in the firm should be able to sign client account cheques or approve payments.
Good practice means limiting the number of signatories and having proper controls. Don't give everyone signing authority. Have different people authorise payments and reconcile accounts. These controls protect both clients and the firm from errors or misuse.
Client money is vulnerable if too many people have unrestricted access. Proper signatory controls, segregation of duties, and regular oversight help prevent problems. If something goes wrong, the firm needs to show it had proper controls in place.
The fewer people who can sign on the client account, the lower the risk of something going wrong. Review signatory lists regularly and remove people who no longer need access. It's not about mistrust - it's about good controls.
The client account holds other people's money. The office account holds the firm's money. Client account has strict rules about what can happen. Office account has more flexibility because it's the firm's money. Money moves from client to office when earned - never the other way (except to correct errors).
Use the client account for any money that belongs to clients or third parties. Use the office account for the firm's own money - income earned, capital, operating funds. If you're unsure whether something should go through client or office, the safe answer is client until you know otherwise.
Money normally flows from client account to office account (when you earn it). It doesn't flow from office to client except to correct errors. This one-way flow protects client funds - once money leaves the client account as earned costs, it doesn't come back.
| Aspect | Client Account | Office Account |
|---|---|---|
| Whose money? | Clients and third parties | The firm |
| Primary purpose? | Safeguard client money | Run the business |
| Can you use it freely? | No - strict rules apply | Yes - it's firm money |
| Overdraft allowed? | Absolutely not | Yes, if arranged |
| Transfers out? | Only for proper purposes | Firm's discretion |
| Can pay clients? | Yes, when entitled | No (error correction only) |
When you transfer earned costs to office, you make four entries. Cash book: credit client bank (money out), debit office bank (money in). Client ledger: debit (reducing their balance). Office ledger: credit (recording income earned). The system stays in balance.
When you pay a client, you credit the client bank in the cash book (money leaving client account) and debit the client ledger (reducing the balance you're holding for them). The client's ledger decreases, and so does the client bank balance.
When you pay a third party from client funds, you credit the client bank and debit the client ledger. If the payment is for a disbursement, you also debit the office ledger to record the expense. The client is ultimately bearing the cost, so their ledger reduces.
| Transaction | Cash Book | Client Ledger | Office Ledger |
|---|---|---|---|
| Pay £2,000 to client | Client bank credit -£2,000 | Debit -£2,000 | None |
| Transfer £1,500 to office | Client bank credit -£1,500, Office bank debit +£1,500 | Debit -£1,500 | Credit -£1,500 |
| Pay £350 to third party | Client bank credit -£350 | Debit -£350 | Debit +£350 (if disbursement) |
You can transfer money from client to office account when you've earned the costs and they're not disputed. This means you've done the work, the client has agreed to pay, and there's no disagreement about the amount. Transferring disputed money is a breach - you can't take what's not clearly yours.
First, confirm the costs are earned and not disputed. Calculate the amount to transfer. Make the electronic transfer or write the cheque. Record in cash book: credit client bank, debit office bank. Update client ledger: debit for the amount. Update office ledger: credit for the income. Verify everything balances.
Every transfer should be clearly documented. Note on the client ledger what the transfer is for, the date, and the amount. Keep a clear audit trail. If anyone asks why money moved from client to office, you should be able to show exactly what earned costs it represented.
If costs are disputed or unclear, don't transfer. Wait until the position is clear. Transferring too early is a breach; transferring later is just a cash flow issue. Better to be slow and right than fast and wrong.
Think of the client account as a vault containing other people's valuables. You're the custodian, not the owner. Your job is to keep everything safe, account for it, and return it when the rightful owner asks. This mindset guides every decision about client account operations.