Handling Mixed Receipts, Cash & Inter-Client Transfers under the SRA Accounts Rules

Core Rule: Prompt Payment of Client Money

• Baseline obligation: Any funds identified as client money must be deposited promptly into the firm’s client bank account.
  • “Promptly” is not defined in the 2019 SRA Accounts Rules; for exam purposes treat it as same day or next working day unless an exception applies.

Exception 1 – Alternative Written Arrangement

• If the client agrees in writing to a different treatment, you may depart from the default rule.
  • Example: Client posts a cheque with written instructions: “Please do not cash until I am paid next week.”
  • Result: You follow the client’s wishes and do NOT pay the cheque in, yet you must still record the receipt in the client ledger.

Exception 2 – Cheques Payable to Third Parties

• A cheque made out to someone other than the firm cannot be paid into either the client or business account.
  • Action: Forward the cheque to the intended payee; no ledger entry needed because the funds never enter the firm’s control.
  • Exam cue: Surveyor’s fee cheque received → forward directly.

Categorising Monies on Receipt

• Client money: Belongs to or is held on behalf of the client; solicitor cannot spend it.
  • Ledger: Credit client’s ledger (client account record) & Debit client cash.
• Business money: Belongs to the firm (fees, costs, accrued VAT once billed).
  • Ledger: Credit client’s ledger (business account record) & Debit business cash.
• Mixed money: Contains both client and business elements (common in conveyancing bills covering fees + completion monies).

Dealing With Mixed Receipts – Two Methods

1. Split-the-Cheque Method

• Physically divide the receipt between the two bank accounts.
  1. Pay client share into client account.
  • Ledger: Credit client ledger (client side); Debit client cash.
  1. Pay business share into business account.
  • Ledger: Credit client ledger (business side); Debit business cash.
• Rare in practice: many banks refuse to split a single cheque.

2. Transfer Method (Most Common)

• Pay entire amount into either the client or the business account, then transfer promptly to the other.
  • 2019 rules permit either starting account provided the re-allocation is prompt.
  • Treat the transfer as a cash transfer (internal movement between firm accounts).

Worked Example – Client “Charles” Buying a Castle

Incoming Cheque: £183,395

Option A – Split Cheque

Client account entries

• Credit Charles ledger (client side) $(£180,000 + £1,500 + £95 = £181,595)$
• Debit client cash £181,595

Business account entries

• Credit Charles ledger (business side) $(£1,500 + £300 = £1,800)$
• Debit business cash £1,800

Option B – Transfer Method (deposit first to client account)

1. Receipt – Client account
   • Credit ledger £183,395 / Debit client cash £183,395
2. Cash transfer out of client account for business share £1,800
   • Client account: Debit ledger £1,800 / Credit client cash £1,800
3. Cash transfer into business account £1,800
   • Business account: Credit ledger £1,800 / Debit business cash £1,800

Either sequence is exam-compliant; wording in MCQs should say the firm “may” do X (not “must”).

Reimbursing the Firm From Client Funds (Disbursements)

• Conditions to move money already sitting in client account to business account:
  1. A bill has been delivered or
  2. The client has been told in advance how/when payments are made and that reimbursement will be taken.
• Once either condition is met, do a cash transfer (client → business) for the amount owed.

Cash Transfers – Definition & Uses

• A cash transfer is an internal movement of money between any two of the firm’s bank accounts (client ↔ business).
• Common scenarios:
  1. Handling mixed receipts (method 2 above).
  2. Correcting a breach (e.g., dishonoured cheque causes shortage → move firm’s own funds into client account).

Inter-Client Transfers

• Purpose: Re-designate money already in client account from Client A to Client B without the funds leaving the client bank account.
  • Ledger entries only; no cash movement.
  • Example (probate): £50,000 held for executors after estate accounts approved → now belongs to heirs.
  • Debit Executors ledger £50,000
  • Credit Heirs ledger £50,000
• Other contexts: stakeholder funds, mortgage advance reallocations (covered in later modules).

Exam Strategy Tips

• Always decide on the correct treatment before looking at MCQ options.
• For mixed money questions, correct answers typically use “may”—reflecting permissible alternatives; options using “must” are often distractors.
• Watch for third-party cheques; the correct action is forward & no entry.
• Remember: Promptly is the only time limit stated; avoid being tricked into appearing to know a non-existent specific period.

Ethical & Practical Implications

• Misallocating mixed funds risks client loss, SRA breach, and disciplinary action.
• Written instructions safeguard client autonomy yet require meticulous record-keeping.
• Accurate inter-client transfers uphold transparency and trust accounting integrity.