Save time by avoiding old client ledger balances

This is a topic that we regularly discuss with solicitors as many firms hold monies that could be returned to their clients.

The SRA has tightened its rules in order to minimise the amount of unclaimed client monies and the Law Society has issued a practice note “Residual Balances” to explain the requirements and provide practical guidance.

Retaining client funds after the completion of a client matter leads to additional administrative work that is usually unproductive in terms of fees so here are a few suggestions on how to ensure the client ledger is clear at the end of a matter:

1.    Agree at the outset how surplus funds will be disposed of. You can include information in your client-care letter or your terms and conditions about what will happen to funds when clients cannot be traced after the closure of a matter. For example, you may enter into an arrangement with a corporate client that small amounts relating to different matters are accumulated and then accounted for at agreed intervals or are donated to charity.  Note in such arrangements your obligation to treat your clients fairly.

2.    Consider asking for the client’s bank details when asking for their personal information so that funds can be remitted directly to the client at the end of the matter.

3.    Ensure the file closure procedures remind fee earners to check that the client ledger is nil before the file is closed. These include checking that outstanding cheques have cleared and therefore will not later need to be cancelled, creating a balance on the ledger.

4.    Ensure that the fee earner or a support staff member is responsible for checking ledger balances monthly to identify balances that should be returned.  The longer the funds are held, the more likely it is that the client cannot be traced and more time has to then be spent resolving the balance.

5.    Ensure that unpaid cheques due to go out of the client account are reviewed monthly as often a small balance remitted to the client at the end of a matter is not banked and ends up as a residual balance to be dealt with later when you may find it harder to trace the client.

6.    Remind clients of the need to keep you up to date with contact details during the course of a long running matter and a retention period.  This reminder can be included in the annual letter explaining the retention.

7.    If your client can be traced but fails to cash a cheque or to instruct you on how to deal with the funds and no prior agreement has been made as to the disposal of surplus funds, you may write to advise the client that the money will be donated to charity under the SAR procedure unless you hear to the contrary within a stated period of time.

8.    If a client does not want to bank a small cheque, you can obtain the client's consent to donate the balance to charity.  Keep a detailed note of their consent and which charity they wish to donate the money to.

9.    For amounts of less than £4, provided you have no reason to believe that your client has moved address, you can send the balance in first or second class postage stamps.

10.  When involved in a practice merger or acquisition, ensure you only accept liability for existing client balances on receipt of the relevant files that allow you to trace the client.

 

Please telephone Caroline Candy on 029 2038 8218 if you would like to discuss this or any other matter affecting your practice further.  We can run seminars, host discussion groups and provide guidance on the Solicitors Accounts Rules for you and your staff.

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