How Credit Card Merchant Fees Are Affecting Your Trust Account

Accepting credit cards as a payment method requires special considerations when it comes to law firms, particularly when a payment is for a trust account deposit. Trust accounts inherently come with extensive rules and requirements in order to protect client funds. To properly process these trust account deposits and stay compliant, the issue of how to handle credit card merchant fees should be addressed in every firm.

WHAT ARE MERCHANT FEES?

In order to process credit cards payments, an account must first be established with a credit card merchant. These merchants make a profit by charging a fee per transaction. This fee can be based on a number of factors, with the most common method including a base charge plus a percentage of the total transaction.

HOW SHOULD MERCHANT FEES FOR CREDIT CARD TRUST DEPOSITS BE HANDLED?

The biggest concern when handling trust account deposits by credit card is deciding who pays for the merchant fees. Should the client pay or should they come out of the law firm’s funds? When it comes to handling client funds, there’s no room for error so it’s important to handle this correctly.

Proper compliance requires the amount charged to the client’s credit card to exactly match the amount deposited into the account in the trust ledger. None of these funds can be counted as earned fees at this time and therefore cannot be used to pay the merchant fees. Deducting these fees from the trust account can create a mess with bookkeeping and lead to major compliance concerns down the line such as potential overdrafts and incorrect reconciliations.

Instead, law firms should work with their credit card merchant provider to charge all merchant fees to a separate bank account. These fees can be billed as they occur or on a recurring monthly basis depending on the agreement with the credit card processing company. This process will ensure the entire amount charged to the client is deposited in full into the law firm’s trust account.

Don’t assume all credit card merchants know how to properly handle these trust account deposits. Merchants that are familiar with the legal industry, such as LawPay, will have the knowledge necessary to meet the unique needs of law firms. Ask questions to make sure no fees will ever be deducted directly from a trust deposit and that all rules and regulations will be followed during the deposit process.

To avoid ethics violations and ensure your firm is handling these credit card trust deposits correctly, it’s critical to take an active role in determining how merchant fees will be handled.

Want to know more about trust accounting challenges that you may not be thinking of? Read our complete guide Beyond the Basics: Advanced Trust Accounting Challenges for Law Firms.