Everyone knows you can't do anything nefarious with your client's money. But what are you supposed to do if they want to make an initial deposit by credit card? What if you are halfway through the month and you have done 20 hours of work for a client, and you need to pre-bill them for your own cash flow needs? What if a client's trust deposit check bounces? What should you do if you make a mistake in transferring funds between trust and checking? What if a departing client never cashes their refund check? What if a current client drops off the face of the earth after giving you a $5,000 deposit?
Over the years, my trust account management has evolved and I have a great solution now. Instead of using Quickbooks, I use an Excel workbook. Excel has the flexibility and calculations that I need to accurately and timely account to clients for their trust deposits and bills. I have one Excel workbook in which I have sheets for each client. On each client sheet I have a complete record of deposits, withdrawals, and checks going back to the day they hired me. This makes it easy to print accountings for clients at any time they ask. Separately, I have a manual checkbook where I manually write checks and note what each check is for. Once a month I look at the online banking page that shows what checks have cleared, and I note any outstanding items with a comment in Excel. This way my calculation in Excel showing the current balance, plus outstanding checks, matches my bank balance and any outstanding checks are obvious.
The credit card deposit
This may not seem like a problem, but here is the dilemma: you get a great deal on a card terminal, but one of the caveats is that they batch-process the transactions and bill you the transaction fees monthly. In other words, you get 100% of the card payments, but the processor charges their fees from the same account you deposit to on a monthly basis. So if you take in $20,000 in deposits in a month, you get the full $20,000 but the processor bills you something like $350 from the same account the payments go to. Are you supposed to credit the trust account for the full $20,000 or for $19,650? I can tell you what I do: I linked my business checking account, not my trust account, to the card terminal. That way card payments go into checking and fees are paid from checking. I disclose this to clients if they are making a trust deposit, and I bear the fees. So the client gets credit for the full amount even though I am paying the 1.5% fee or whatever it works out to. The only downside is that client card payments are temporarily held in checking. When the transactions post, usually the next day, I transfer the funds to the trust account. Because I disclose this to clients before they make deposits, it's all good.
Let's say a client has $5,000 in trust with me and I have done 15 or 20 hours of work for them that month. I get to the halfway point in the month and I realize that I'm not going to have enough cash to cover payroll. What should I do? This is why I have a credit line, but what if I'm maxed out on it? This is why I have put a clause in my standard fee agreement that I can issue more frequent bills than monthly at my discretion. The question I ask myself when evaluating this issue is: if the client gave notice of termination of the attorney-client relationship, what would their final bill look like at that moment? As long as you earned the money, document the hours on your time sheet, and document the pre-bill in the trust account spreadsheet, my view is that this is sufficient. In any case, I have not run into anyone who has a problem with this concept.
The bounced trust deposit
This hasn't happened yet, but I can tell you the answer: the attorney should cover the returned check fee out of his personal funds.
Mistakes in accounting
Minor mistakes such as being off by $100 on a bill are the attorney's responsibility, and the attorney should cover the error from his personal funds.
The client who goes incommunicado
It's happened a few times: the client is all gung-ho about their case when they come in for the consultation, and they want to take immediate action. They pay the deposit and sign the fee agreement that same day. A couple of days pass. A week passes. Two weeks pass and I have still heard nothing in response to my calls and emails. Finally, I write the client a letter stating that we are dropping them as a client due to their non-communication. I then will hear from the client that they were having personal problems that prevented them from contacting me. I don't have a problem with that in the abstract. Rather, the problem is what to do with their deposit. Should I return it with the letter, or wait for instructions? I don't know, but I definitely don't want to get into the habit of writing refund checks to clients who change their minds. I think I will start asking clients in the initial meeting whether they are sure they want to proceed. That makes no sense to me, but then again, my style of litigation does not really permit uncertainty in terms of a client's desire to proceed.
Last updated: July 6, 2018
© 2018 Andrew G. Watters