FAMILY HOLD BACK- COSTS AND THE NEW ACCOUNTS RULES

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By Trevor Hellawell

One of the key changes under the proposed SRA’s new Accounts Rules is the ability to bank any money a firm receives for its costs (and other liabilities for which the firm is liable (the main routine disbursements)) immediately into its own coffers.

 

For decades this has been regarded as client money until such time as the legal work is done, and a bill of costs (or other written notification) sent to the client. The main exception was always for ordinary disbursements that were incurred but yet to be paid, or indeed any disbursement that the firm had already paid out of its own pocket.

 

The justification for this is that it may remove the need to have a client account altogether for some firms, and reduce the average balances below the minimum threshold for obtaining an accountant’s report. This will make life easier for many.

 

The change allows a firm to bank immediately (in office account) any money relating to legal services provided by the firm (whenever paid) together with any funds that will go towards the payment of disbursements such as conveyancing searches, medical reports, counsel’s fees, courier fees etc. The new Rules fail to make any distinction between professional and ordinary disbursements.

 

In years of teaching, I have described this notion as that of ‘family hold back’ – the lawyers and the professional team were the last to get paid – after all the work had been done, the bill of costs issued and terms of payment expired. Over the years, interim bills and money on account of costs have become commonplace (and good sense) but it was always still the case that the work had to have been done, and a bill issued before the funds could be withdrawn (within 14 days) from client account and put into office account.

 

There were VAT issues over work-in-progress too, that made scheduling a nightmare.

 

On a basic human level, this discipline at least forced the profession to speed up, deliver a decent service and keep the customer satisfied so that we could justify sending them a hefty bill, which of course was our intention anyway. Management commentators would also say that genuinely wanting to help clients should be our overarching motivation – the money, which came later, should be regarded as our reward for having done a decent job. If we did, the amount of money would be more than satisfactory.

 

This change in the Rules allows us to bank any payments that are referable to our costs straight into office account, regardless of when those costs are paid. So if a firm can give a quote (say for conveyancing) early on in the transaction – and request payment of it – then it can be paid directly to the firm, regardless of whether the work has actually been done or not. This may have a bearing on the fee-earner’s incentive to continue to press on with the transaction after countless phone calls to and from the estate agent and client, and in many cases, the tedium of sorting out the minutiae of a typical house-move may get too much. The continuing downward pressure on conveyancing prices surely won’t help this.

 

I have much sympathy for the financial plight of the law firm and anything which enables it to operate on a more manageable cash flow basis is to be applauded, but I wonder whether the incentives that drive individuals to offer superlative service will be eroded.

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