What Is a Solicitor’s Client Account and How Should It Be Managed

A solicitor’s client account is a designated bank account used exclusively to hold money belonging to clients or third parties. The funds do not belong to the law firm and must be kept separate from the firm’s own business (office) money.

Client accounts are governed by the SRA Accounts Rules, which require solicitors to handle client money in a way that protects clients and maintains public confidence in the profession.

The purpose of the client account is to ensure that client funds are:

• Safeguarded against misuse or insolvency.

• Used only for the matter or transaction they relate to.

• Available immediately when required for payment or transfer.

Client accounts can be general (holding money for multiple clients) or designated (set up for a specific client or matter).

What counts as client money

According to the SRA Accounts Rules, client money includes:

• Funds held for legal transactions, such as conveyancing or probate.

• Money on account for future legal fees or disbursements.

• Compensation or settlement funds belonging to a client.

• Retainers or deposits that have not yet been earned.

Client money does not include funds that have been billed and paid for completed work. Once the invoice is raised and paid, the funds become office money and can be transferred to the firm’s business account.

Key principles of managing a client account

Managing client accounts properly is essential for compliance and trust. The main principles are:

1. Segregation of client and office money

Client money must always be held separately from the firm’s own funds. Mixing client and office money, known as commingling, is a serious breach of SRA rules.

Law firms should have at least one client account and one office account, with clear processes to ensure that transfers between them are accurate and properly authorised.

2. Accurate record keeping

Firms must maintain detailed accounting records for every client and matter. This includes:

• Client ledgers showing all receipts and payments.

• Bank statements for each account.

• Daily cashbooks recording all transactions.

• Copies of bills, receipts, and payment authorisations.

Records must be kept up to date and retained for at least six years.

3. Regular reconciliations

Reconciliations between the client ledger, cashbook, and bank statements must be carried out at least once every five weeks.

This process ensures that the balance of the client account matches the total of all client ledgers. Any discrepancies must be investigated and resolved immediately.

Reconciliations should be reviewed and signed off by a manager or the Compliance Officer for Finance and Administration (COFA).

4. Prompt banking and disbursement

Client money received by the firm must be paid into the client account promptly, usually within a few working days.

Similarly, payments and transfers from the client account should be made as soon as the money is required for the relevant transaction. Holding client money unnecessarily or delaying transfers can be considered a breach.

5. Proper authorisation and controls

Only authorised individuals should have access to the client account. The firm should establish clear approval processes for payments, transfers, and withdrawals.

Dual authorisation (two-person sign-off) is recommended to prevent errors or misuse.

6. Returning residual balances

After a matter concludes, any remaining client money must be returned to the client promptly. Holding residual balances for long periods breaches SRA rules and can result in disciplinary action.

If a client cannot be traced, the firm must follow the SRA’s guidance on donating unclaimed funds to charity with the regulator’s approval.

The role of the Compliance Officer for Finance and Administration (COFA)

Every SRA-regulated firm must appoint a COFA, who is responsible for ensuring compliance with the Accounts Rules.

The COFA’s duties include:

• Monitoring financial controls and reporting systems.

• Reviewing reconciliations and internal audits.

• Reporting material breaches to the SRA.

• Supporting staff with compliance training.

Although the COFA oversees compliance, all partners and managers share responsibility for safeguarding client money.

How accountants help manage client accounts

Specialist legal accountants play a key role in ensuring law firms manage client money correctly. Their work includes:

• Setting up compliant accounting systems and chart of accounts.

• Performing monthly or quarterly reconciliations.

• Reviewing and certifying annual SRA accountant’s reports.

• Advising on segregation of funds and internal controls.

• Providing staff training on SRA Accounts Rules.

By working closely with the COFA and finance team, an accountant helps identify risks early and ensures that all SRA requirements are met.

Common client account breaches and how to avoid them

Even well-managed firms can make mistakes that lead to breaches. Common issues include:

• Delayed reconciliation or inaccurate client ledgers.

• Using client funds to cover firm expenses.

• Holding money for clients longer than necessary.

• Failing to return residual balances promptly.

• Incomplete authorisation of transfers.

To avoid breaches, firms should:

• Use dedicated legal accounting software.

• Review reconciliations regularly.

• Provide ongoing staff training.

• Conduct internal audits at least annually.

The importance of independent accountant reports

Most law firms that hold client money must obtain an accountant’s report every year. This report confirms whether the firm has complied with the SRA Accounts Rules and whether any breaches are material.

An independent accountant will review the firm’s books, reconciliations, and processes. If no significant issues are found, the report is submitted to the SRA as “clean.” If material breaches are identified, they must be reported for follow-up investigation.

Regular independent reviews provide reassurance to both the SRA and clients that funds are being handled safely.

Final thoughts

A solicitor’s client account is one of the most critical aspects of legal practice management. It exists to protect client money, maintain trust, and uphold the profession’s integrity.

Managing it properly requires careful record keeping, timely reconciliations, and strict compliance with the SRA Accounts Rules. By working with specialist accountants and maintaining strong internal controls, law firms can prevent breaches, stay compliant, and ensure that client money is always handled with the highest standard of care.