Handling Client Money and the Client Account
Written and reviewed by the Legal Accountants editorial team. Last reviewed 28 July 2026.
The client account is where most SRA Accounts Rules problems begin, and it is almost always a matter of discipline rather than dishonesty. Money sits where it should not, a reconciliation slips, or old balances are never cleared.
This is how a client account should be run day to day, and the specific habits that keep a firm out of trouble and its annual report clean.
Money In, Money Out
Client money is paid into the client account promptly and drawn out only for a proper purpose on that client's matter. You do not use one client's money for another's, and you do not leave the firm's own money mixed in, beyond the small amount the rules allow to keep an account open.
The other side is billing. Money held for your fees is client money until you have properly billed for it, at which point it can move to the office account. Getting that transfer right, and only after a bill, is one of the areas a reporting accountant looks at closely.
Reconciliations That Actually Happen
You have to reconcile the client account regularly, comparing the bank against your ledgers and the total of what you hold for each client, and investigate any difference. A reconciliation that is done late, or done without chasing down the differences, is the same as not doing it as far as the rules are concerned.
This is where keeping the bookkeeping current pays for itself. A firm that reconciles every month finds a problem while it is small; a firm that reconciles once a year finds a year of problems at once.
The Residual Balance Problem
Residual balances are the small amounts left on the client account after matters have finished: an overpayment never returned, a few pounds of interest, a client who cannot be traced. Individually trivial, collectively a compliance issue, and a very common finding on a report.
The rules require you to identify these, return the money where you can, and deal with what you cannot properly rather than letting it sit. We clear residual balances as part of getting a client account straight, because they are the thing most likely to turn an otherwise clean report into a qualified one.