How can accountants help solicitors manage client interest?

At Towerstone Accountants we provide specialist accountancy services for solicitors and law firms operating under SRA regulation. This article has been written to explain How can accountants help solicitors manage client interest in clear practical terms so you understand how the rules apply in day to day practice. Our aim is to help you stay compliant protect client money and make informed financial decisions.

Managing client interest is one of those areas where legal rules, financial controls, and professional judgement overlap. In my experience working with solicitors and law firms, client interest is rarely the headline issue that brings firms into difficulty, but it is very often part of a wider picture of weak systems, misunderstood rules, or poor oversight.

Client interest sits at the intersection of trust, regulation, and money. It involves understanding when interest must be paid, how it should be calculated, where it should be recorded, and how it fits into the wider client account framework. These are not areas most solicitors train for in depth, and that is where accountants play a crucial role.

In this article, I will explain how accountants help solicitors manage client interest properly, why it matters more than many firms realise, and how good financial systems can protect both clients and practising certificates. I will write from the perspective of real world advisory work, not theory, and focus on practical steps that actually work in busy practices.

What client interest actually is and why it exists

Client interest arises when a solicitor holds client money for a period of time and that money earns interest. The principle is straightforward. If a solicitor holds a client’s funds and those funds generate interest, the client may be entitled to some or all of that interest.

The obligation is not driven by generosity. It is driven by regulation and fairness. Client money does not belong to the firm, even temporarily, and any benefit arising from holding it may belong to the client.

The difficulty lies in determining:

• When interest must be paid

• How much interest is due

• Whether de minimis thresholds apply

• How interest should be calculated

• How and when interest should be paid

These are not simple questions in practice, especially where firms act on high volume matters or hold money for varying periods.

The regulatory framework solicitors must follow

Client interest is governed by the Accounts Rules issued by the Solicitors Regulation Authority. These rules set out the overarching obligation to account to clients for interest on client money, subject to fairness and reasonableness.

The rules do not prescribe a single method for calculating interest. Instead, they require firms to:

• Have a written policy on client interest

• Apply that policy fairly and consistently

• Make the policy available to clients on request

• Ensure interest paid reflects what is fair in the circumstances

This flexibility is helpful, but it also creates risk. Without strong financial input, policies can drift out of line with reality or become inconsistent in application.

Why solicitors often struggle with client interest

From what I see, client interest problems rarely stem from bad intent. They usually arise because:

• Interest feels administratively burdensome

• Amounts involved are often small

• Banking structures are not well understood

• There is uncertainty about thresholds and fairness

• Responsibility is unclear between fee earners and finance teams

Solicitors are trained to manage legal risk. Client interest is financial risk, and without proper support, it can be overlooked.

This is exactly where accountants add value.

Helping solicitors design a compliant client interest policy

One of the most valuable things an accountant can do is help a firm design a client interest policy that is compliant, practical, and defensible.

A strong policy should clearly explain:

• When interest will be paid

• When it will not be paid

• How interest is calculated

• What rate is used

• Any minimum thresholds

• How clients are informed

Accountants bring structure to this process. They understand how interest is generated in real banking environments and can align policy wording with actual cash movements.

Crucially, accountants help ensure that the policy can be applied consistently across hundreds or thousands of matters, not just in theory.

Ensuring the interest rate used is reasonable

One of the most sensitive aspects of client interest is the rate applied. The rules do not require firms to pass on the full gross interest earned on pooled client accounts, but they do require fairness.

Accountants help firms assess:

• The interest actually earned on client accounts

• Bank charges and account costs

• The administrative cost of managing client money

• Whether the rate applied remains reasonable over time

Without this analysis, firms risk using outdated rates that no longer reflect reality. That can lead to underpayment of interest or overpayment that damages profitability.

An accountant will typically review bank statements, interest certificates, and account terms to ensure the firm’s policy remains grounded in real numbers.

Calculating interest accurately and efficiently

Interest calculations are deceptively complex, particularly in firms with high transaction volumes.

Accountants help solicitors implement systems that:

• Track how long client money is held

• Identify balances above interest thresholds

• Apply the correct rate for the correct period

• Calculate interest consistently

This often involves working with practice management software, spreadsheets, or bespoke workflows. The goal is to remove guesswork and manual intervention as much as possible.

When interest is calculated manually without oversight, errors are almost inevitable.

Integrating client interest into client account reconciliations

Client interest does not exist in isolation. It sits within the broader framework of client account management.

Accountants ensure that interest:

• Is properly recorded in client ledgers

• Reconciles to bank interest earned

• Is reflected accurately in three way reconciliations

• Does not create unexplained differences

This is an area where small errors can quickly snowball. Interest that is calculated but not posted correctly can distort client balances and create reconciliation issues that raise red flags during audits or inspections.

Advising on de minimis thresholds

Most firms adopt a de minimis threshold below which interest is not paid, on the basis that the cost of calculation and payment would exceed the benefit to the client.

Accountants help firms justify and document these thresholds by:

• Analysing average balances and holding periods

• Estimating administrative costs

• Benchmarking against similar firms

• Reviewing regulatory expectations

This evidence based approach is critical if the policy is ever challenged. A threshold that feels sensible but lacks support may not withstand scrutiny.

Supporting transparency and client communication

Client interest is also a communication issue.

Accountants help solicitors ensure that:

• Engagement letters reflect the interest policy

• Client care documents are accurate

• Interest payments are clearly explained on statements

• Queries can be answered confidently

Clear communication reduces complaints and builds trust. When clients understand why interest is or is not paid, disputes are far less likely.

Preventing misuse of client interest as firm income

One risk area I see repeatedly is firms unintentionally treating client interest as office income.

Accountants help prevent this by:

• Ensuring interest earned is analysed correctly

• Distinguishing between interest attributable to clients and firm entitlement

• Setting up correct ledger postings

• Reviewing residual balances

Without this clarity, firms can drift into non compliance without realising it.

Assisting the COFA with oversight and reporting

The Compliance Officer for Finance and Administration carries personal responsibility for compliance with the Accounts Rules.

Accountants support COFAs by:

• Providing regular reports on client interest

• Highlighting anomalies or trends

• Assisting with internal audits

• Supporting breach assessments where needed

This support is invaluable, particularly in smaller firms where the COFA may also be fee earning.

Helping firms respond to SRA reviews or inspections

When the regulator reviews a firm’s accounts, client interest is often part of the scope.

Accountants help firms prepare by:

• Reviewing interest policies and calculations

• Testing compliance across sample matters

• Ensuring documentation is complete

• Identifying and correcting issues early

This proactive approach significantly reduces stress and risk during regulatory engagement.

Managing client interest in high volume practices

High volume practices face unique challenges. Conveyancing firms, personal injury firms, and probate practices may hold client money across thousands of matters.

Accountants help design scalable systems that:

• Automate interest calculations where possible

• Apply rules consistently

• Reduce reliance on manual checks

• Provide audit trails

Without these systems, compliance becomes unmanageable as volume grows.

Addressing interest on designated client accounts

Some firms use designated client accounts for specific matters. Interest handling here can differ from pooled accounts.

Accountants help solicitors understand:

• How interest is generated on designated accounts

• Whether interest must be paid in full to the client

• How to record and report this correctly

These distinctions matter, and misunderstanding them can lead to significant under or overpayment.

Training staff and embedding good practice

Policies and systems only work if people understand them.

Accountants often help firms by:

• Training finance teams on interest handling

• Supporting fee earners in understanding when interest applies

• Creating simple internal guidance

• Reinforcing the importance of consistency

This reduces reliance on a small number of individuals and builds resilience into the firm.

Identifying patterns and risks early

One of the hidden benefits of involving accountants is trend analysis.

By reviewing interest data over time, accountants can identify:

• Matters where money is held for unusually long periods

• Patterns that suggest delayed billing

• Systems that are no longer fit for purpose

These insights often lead to wider operational improvements beyond compliance.

What happens when client interest is handled poorly

When client interest is mishandled, the consequences are rarely limited to interest itself.

Issues often cascade into:

• Client complaints

• Regulatory scrutiny

• Reputational damage

• Wider reviews of client account management

Accountants help firms avoid this by ensuring small issues are dealt with before they become big ones.

Why early involvement of accountants matters

The best outcomes occur when accountants are involved early, not just when something goes wrong.

Early involvement allows:

• Policies to be designed properly from the outset

• Systems to grow with the firm

• Risks to be identified before they crystallise

• COFAs to sleep better at night

Client interest is a small area on paper, but a big one in practice.

Final thoughts

Client interest is not just a technical requirement. It is a test of how well a firm respects client money, understands its regulatory environment, and manages financial risk.

Accountants play a vital role in helping solicitors navigate this area with confidence. From designing fair policies to implementing robust systems, from supporting COFAs to preparing for regulatory scrutiny, their involvement turns client interest from a compliance headache into a well controlled process.

In my experience, firms that take client interest seriously tend to take everything else seriously too. That mindset protects clients, protects the firm, and ultimately supports long term sustainability in a demanding profession.

You may also find our guidance on How can an accountant help prevent breaches of client money rules and How do solicitors record client money received in advance useful when reviewing related SRA and accounting obligations. For a broader overview of solicitor accounting and compliance topics you can visit our solicitors accounts rules hub which brings all related guidance together.