Lawyers are held to very strict protocols regarding their acceptance of retainer fees from clients and the use of the firm’s business and trust accounts. In fact, lawyers found using money from a client’s trust account for business or personal uses can be suspended or disbarred from the practice of law. Here are a few tips for properly handling your firm’s finances.
1. Open At Least Two Accounts (a business checking account and an IOLTA trust account)
- Use the business checking account for day-to-day expenses, aka operating accounts
- The IOLTA account contains your clients’ funds and cannot be used for your firm’s expenses, including taxes, payroll, and other operating expenses.
- Funds from IOLTA account can be transferred once becomes earned income, and must be properly accounted for.
- Misuse of the IOLTA account or the Client Trust Account can result in suspension or disbarment from the practice of law
2. Accepting credit cards at your firm will simplify your bookkeeping process
- Lawyers who accept credit cards will not only benefit from offering an alternative form of payment but will also enjoy the simplification of bookkeeping that comes with accepting credit cards.
- By law, all firms are not allowed to debit fees from the IOLTA account. Funds can be deposited into the IOLTA but fees cannot.
3. Make sure your payment processor offers next-day funding
- Firms occasionally need to advance funds for various business expenses (paying employees’ salaries and other overhead expenses) before having received funds from a client or settlement. Next-day funding is an effective and cost-efficient way to address this issue. Make sure your payment processor offers next-day funding.
4. Credit cards and lines of credit can efficiently provide temporary solutions for cash flow issues
- It is imperative that attorneys manage their clients’ trust accounts and the firm’s operating accounts separately from each other, and that funds from IOLTAs/CTAs are only transferred/utilized upon becoming earned income.
- Using a business credit card is a great way to properly handle expenses and to avoid mixing your firm’s business accounts and client trust accounts.
5. Take the time to frequently look over your firm’s financials
- Along with reviewing your income statement at least monthly, it is imperative that you evaluate your payment processing solutions at least annually. The industry is constantly changing and you may be able to find a payment processor with lower monthly rates and with more robust security features to protect you and your clients.
Contact Precision Payment Systems at 504-434-0998 if your law firm is interested in discussing proper financial practices with an expert in the field.