How to be SRA accounts rules compliant part 1: A guide to client residual balances 

Client residual balances refer to any remaining amounts in a client account after all legal fees, charges, or disbursements have been deducted. These balances may be the result of overpayments or minor sums that remain at the end of a case or matter. Properly managing these residual balances is crucial for ensuring compliance with the SRA Accounts Rules and maintaining transparency with clients. 

This guide will provide you with everything you need to know about handling client residual balances in line with the SRA Accounts Rules. 

For more information, please visit the SRA client residual balances here.

What are residual client balances? 

Residual client balances are typically small sums of client money left over after a matter concludes. These amounts often occur when: 

• A client overpays for services or disbursements. 

• Costs are slightly less than anticipated or invoices are overpaid. 

• A matter or transaction closes with an outstanding balance. 

Under the SRA Accounts Rules, any residual balance must be managed carefully to avoid falling into regulatory non-compliance. ited resources. Below are some common obstacles and practical solutions.

The SRA’s position on residual balances 

The SRA Accounts Rules require law firms to manage client money with the utmost care. This includes dealing with any residual balances that are left after a matter concludes. 

1. Prompt return of funds: As soon as a client matter is concluded and all fees have been deducted, any remaining funds should be returned to the client. If the funds are not claimed by the client immediately, the firm must take reasonable steps to contact the client and return the funds. 

2. Written authority for holding residual balances: In cases where a balance remains in the client account for a prolonged period (usually more than 6 years), written permission must be obtained from the client to retain these funds. Firms must also have processes in place to ensure the client has been given ample opportunity to claim the residual balance. 

Failure to comply with these rules can result in disciplinary action from the SRA, including fines, sanctions, or a review of the firm’s processes. 

Why efficient management of residual balances is crucial 

Poor management of client residual balances can lead to: 

• Regulatory consequences: Failing to manage these balances correctly could result in the SRA imposing sanctions, including fines or even more severe actions, such as the suspension of your firm’s ability to handle client money. 

• Client complaints: If clients are not notified of any remaining funds or the funds are not returned promptly, it can lead to a loss of trust and damage the firm’s reputation. 

Audit and financial risk: Inaccurate or incomplete management of client funds can make it difficult to pass audits, causing potential issues with financial oversight, but firms with outdated systems may find this difficult.

Effective management ensures that: 

• Client funds are handled with integrity and in accordance with the law. 

• The firm remains compliant with the SRA Accounts Rules and avoids the risk of financial penalties or investigations. 

Best practices for managing residual client balances 

To avoid compliance issues, law firms should implement best practices for managing residual client balances, ensuring all client funds are properly handled. 

1. Develop clear internal procedures 

A comprehensive internal procedure should outline how to deal with residual balances. This procedure should include: 

• Identifying residual balances: The firm should ensure that there are processes in place for monitoring client accounts and identifying any residual balances. 

• Determining when funds can be returned: Once a matter concludes, the firm must ensure the client’s account is reviewed, and any residual balances are promptly returned. 

4. Regular reviews and audits 

Firms should regularly audit their client accounts to ensure all residual balances are identified and managed. This includes: 

• Conducting routine checks to ensure any balances are refunded or returned to clients. 

• Reviewing long-standing residual balances and taking action to return these funds or seek client authority to retain them. 

5. Clear client communications 

Effective communication with clients is vital. Firms should ensure they notify clients of any residual balance left in their account and explain how it will be handled. Additionally: 

• Keep clear records of client communications regarding residual balances. 

Include instructions in final invoices or statements detailing how clients can request a refund. ach reduces the risk of oversight and strengthens adherence to the Code.

6. Use of client account for residual balances 

Consider setting up a dedicated client account for residual balances. This approach helps to: 

• Minimise the risk of these balances being mixed with other client funds. 

• Ensure transparency in the management and movement of funds. 

How Osprey helps with managing residual balances

Osprey Approach provides law firms with the tools they need to comply with SRA Accounts Rules and efficiently manage residual client balances. Here’s how Osprey supports this process:

Comprehensive audit trail for client funds

Osprey ensures an audit trail for all client fund transactions, including residual balances. This allows firms to demonstrate compliance at any time by providing a clear record of transactions.

Customisable reporting

Osprey’s reporting capabilities enable firms to generate detailed client ledger reports that display totals for office, disbursement, and client balances. These reports also include the “last movement date,” helping users identify balances that haven’t been updated for a defined period. By exporting the report to Excel, firms can apply filters to highlight rows with “old” last movement dates for further investigation.

For firms using workflows, it’s possible to create a bespoke report that combines the client ledger balance report with the “file completed date” field. This makes it easy to identify matters that have been completed but still show balances in office, disbursement, or client accounts.

Streamlined client communication

Osprey’s built-in communication tools and templates simplify the process of contacting clients about residual balances. These features help firms track interactions, return or transfer funds promptly, and handle common situations such as small balances resulting from conveyancing matters.

Workflow automation for residual balance management

Firms can implement a global workflow to handle the process of chasing clients for residual balances, especially for smaller amounts where clients may not respond promptly. Workflows can guide teams through multiple stages of communication before final options—such as donating small residual balances to charity—are considered, ensuring compliance with all regulatory requirements.

Safeguards against archiving with balances or WIP

Osprey prevents users from archiving a file if there are outstanding ledger balances or unbilled time (WIP) on the matter. This safeguard ensures that balances are addressed before a file is closed, avoiding compliance issues often encountered with systems that lack this protection.

By leveraging Osprey’s robust tools and workflows, law firms can efficiently manage residual client balances, maintain compliance, and uphold the financial integrity of their practices.

Book a consultation to discover how Osprey Approach can help you effectively complete client and matter risk assessments across your teams. 

For further advice and best practices you can view parts two and three of our SRA account rules guides.

Disclaimer

This guide is not intended as legal advice. For detailed guidance on the SRA Code of Conduct, please visit the official SRA website.