Client account operation — receipts & payments

Solicitors Accounts (FLK2) — SA.03 Client Account Operation: Receipts & Payments

Governed by the SRA Accounts Rules 2019 (in force 25 Nov 2019). The core duty: keep client money safe and separate from the firm's own money. The 2019 rules are deliberately short (13 rules) and outcomes-focused — do not import the old 2011-rule numbering or its fixed time limits.

Core definitions

• Client money (Rule 2.1): money held or received for a client or third party relating to regulated services — money held as trustee or in connection with the firm's role as trustee, money received for fees and unbilled disbursements/costs, and money received on account of costs (Rule 2.1(a)–(d)).
• Client account: an account at a bank or building society in England & Wales, in the firm's name, with the word "client" in the account name (Rule 3.2).

Receipts — the key rules

• Client money must be paid promptly into a client account (Rule 2.3). "Promptly" — in practice the same or next working day.
• Keep client money separate from money belonging to the firm (Rule 4.1). Never use one client's money for another client's matter.
• Mixed receipts (part client, part business — e.g. a payment covering billed costs and money held for the client): the firm must allocate the money promptly to the correct ledger/account (Rule 4.3). You must not use client money to pay the firm's own fees before a bill or other written notification of costs is given (Rule 4.2 / Rule 4.3 read together).

Payments — the key rules

• Rule 5.1: only withdraw client money (a) for the purpose for which it is held, (b) on the client's instructions or with their authority, or (c) otherwise as permitted by the rules or required by law.
• Rule 5.3: a withdrawal from client account must be appropriately authorised and supervised by a manager or COFA (or equivalent).
• No overdrawn client accounts: the rules treat the client account as money you hold for that client — you cannot pay out more than you actually hold for that client, because doing so spends another client's money (breach of Rule 5.1/5.3 and the separation principle in Rule 4.1). There is no "Rule 8.1" prohibition — Rule 8 deals with record-keeping.

Costs / when money becomes the firm's

• Money for costs becomes the firm's money once a bill or other written notification of costs has been delivered; it is then no longer client money and must be transferred out of the client account promptly (Rule 4.3). Note: the 2019 rules impose no fixed 14-day transfer deadline — that was the old 2011 rules. The current test is "promptly."

Records & breaches

• Rule 8: keep accurate, contemporaneous client ledgers and a record of all dealings with client money; carry out a reconciliation of the client account at least every five weeks (Rule 8.3).
• Rule 6: correct any breach promptly on discovery and replace any shortfall immediately.

Common traps

• Mixing client and business money — the cardinal breach. Round-sum or anticipatory transfers of costs before a bill is delivered are improper.
• A payment from client account does not "clear" the firm's obligation until the firm actually holds cleared funds for that client — paying out against an uncleared receipt risks overdrawing the client ledger (breach).
• No client money? A firm may operate without a client account under Rule 2.2 where the only money it holds is fees and unincurred disbursements paid in advance — but only if the conditions are met and the client is informed in advance.
• Disbursements: money received for a disbursement remains client money until the disbursement is actually incurred/paid.
• Return residual balances promptly once there is no longer any proper reason to hold the money (Rule 2.5).