Guidance Client Credit Balances - how to deal with small or old balances
Guidance Terms of Business - Client Funds
In some cases practices find that they have client credit balances left on ledgers after a transaction has completed and they seek guidance on how these balances may be disposed of without breaching the Accounts Rules. The answer is that a client credit balance is a sum of money due to that client and it should be paid to or on behalf of the client. In relation to current transactions where most outlays will be invoiced or paid before conclusion of a transaction, or shortly thereafter, it should be possible to remit any excess funds to the client without difficulty. The problem of not being able to trace a client to return funds should primarily relate to old balances and in a well run office new instances should only arise very occasionally.
It is recognised that in some circumstances clients cannot be traced and therefore funds cannot be returned to them. Where such a circumstance arises, provided the balance held is less than £25 and it can be demonstrated that a recent attempt has been made to contact the client by writing to the last known address, the balance may be taken to the firm by way of a fee note. If the balance is in excess of £25 a fee may be taken for trying to locate the client at the last known address and the remaining balance should be remitted to The Queen’s and Lord Treasurer’s Remembrancer (Q<R). It should be noted that where a firm has neglected to deal with a balance timeously and the delay is likely to be the reason that time and /or costs have been incurred in trying to locate the client, the Society will not be sympathetic towards allowing the firm to make any recovery from the client funds held.
Fee notes raised in such circumstances obviously cannot be rendered to the client. It would be sufficient to place the fee note on file together with the returned recorded delivery letter, or other evidence of having tried unsuccessfully to contact the client.
In circumstances where funds are remitted to the Q<R it will be necessary to provide as much information regarding the client as possible. A short explanation, including the client name and last known address, date and type of transaction and any reason for the funds not being distributed at the time of the transaction, should be included in a schedule to be sent together with a cheque for the total sum. Credit balances which are held in respect of untraced beneficiaries, or in other circumstances, and which may be substantial sums, may also be remitted to the Q<R. In the event that the client or beneficiary is found or appears at a later date then the funds may be recovered from the Q<R.
Please contact the Q<R directly for further details at, Crown Office, 25 Chambers Street, Edinburgh EH1 1LA. 0131 247 2692.
It is also recognised that in some cases, balances held on ledgers will be very small and it would be impractical to raise a fee note for each one. It is suggested that, where an individual balance is less than £5, such balances may be aggregated for the purposes of raising a fee note. The fee note should include a list of all the accounts and the balances there on which make up the total sum.
The Society would encourage all practices to ensure procedures are in place for a regular review of all client balances but in particular those credit balances where a transaction has recently completed.
I would stress that this note is guidance for a practical approach to such balances in circumstances where the funds cannot be returned to the client. It does not form or imply an amendment to the Accounts Rules as currently in force.
