What steps should I take when recording a client payment?

CosmoLex Team

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The steps your law firm should take when it receives a client payment depends on the bar rules of the jurisdictions where you practice. Some states allow attorneys to place client overpayments in the attorney’s operating account and track the overpayment as an operating retainer. But in many jurisdictions, when a client overpays on an invoice, the attorney must either deposit the entire payment into trust, pay themselves from trust for the actual amount owed, and then refund the overpayment to the client, or the attorney must send the check back and ask the client to send a new payment for the exact amount of the invoice.[1][2][3][4] Also, in some jurisdictions, a pre-paid flat fee may become the attorney’s property upon receipt and must be deposited into the attorney’s operating account.[2] So, checking with your state bar regarding how to handle client pre-payments, payments, and overpayments should be the first step you take when you receive funds from a client.

Once you have checked your state and local bar rules, the following are the steps that many law firms follow when recording a client payment:

    1. Make a copy of the check or credit card receipt (in electronic or paper format).
    2. Determine if the payment was a pre-payment on a flat fee, a contingent fee, a payment on an existing invoice, an overpayment on an existing invoice, or an advanced fee deposit.
    3. Deposit the funds into the proper bank account – trust, pooled trust, or operating – as required by your state bar rules.
    4. Record the deposit into your accounting software making sure to record it in the proper bank account (or if you don’t have accounting software, then into your electronic or paper accounting records).

References

1. Trust Account Manual
2. Managing Client Trust Accounts Booklet
3. Ethics of ACH Payments for law Firms
4. Handbook on Client Trust Accounting for California Attorneys