Client Money in a Separate Account: Deposits and Retainers Held Apart From Trading Cash and Drawn Only When Earned
A deposit from a client is not your money. It is money you are holding until the work is done, and the moment it lands in the trading account it starts to look like income. A client money separate account deposits retainers held routine gives other people’s money its own home, so a refund is never a raid on this week’s wages.
A client money separate account deposits retainers held plan with its own home
Start by opening a separate account for client money, and use it every time. A client money separate account deposits retainers held plan puts deposits and retainers into that account on the day they arrive, lists each client’s balance on one page, and moves money to the trading account only when the work it pays for is done, in the stages the agreement states.
- Open a separate account for client money, clearly named so no one mistakes it for trading cash.
- Pay every deposit and retainer into that account on the day it arrives.
- List each client’s balance on one page, updated whenever money moves.
- Move money to the trading account only when the work it pays for is done.
- Follow the stages the agreement states, and never draw ahead of the work.
- Pay any refund from the client account, and record it against that client’s balance.
Why the Separate Account Matters
Money that sits in the trading account gets spent. That is not dishonesty; it is how a busy account works, with wages and bills going out every week. A client money separate account deposits retainers held routine stops that drift by keeping client money out of the spending account altogether, so the balance in the trading account is money the business has actually earned. It also protects the business when a client changes their mind, because the deposit is still sitting where it was put, ready to be returned in full.
The separate account also makes the truth visible. When a client asks where their deposit stands, the answer is one page, not a hunt through months of trading-account entries. When the business is quiet, the client balances are still there, untouched, because they were never mixed with the week’s takings.
The Client List: One Page, Every Balance
An account without a list is only half a system. A client money separate account deposits retainers held routine keeps a single page that shows every client’s balance, with each deposit, each draw and each refund written against the right name. The page is updated whenever money moves, not at the end of the month, so it is never out of date when it matters.
Reconcile the page against the bank statement regularly, and treat any difference as a job to do now. A list that agrees with the bank is proof the system works; a list that drifts is a warning that money has moved without a record, and the longer the drift runs, the harder it is to trace.
Drawing Only When Earned: The Stages in the Agreement
Money moves from the client account to the trading account only when the work it pays for is done. A client money separate account deposits retainers held routine follows the stages the agreement states, so a deposit for a three-stage job is drawn in three parts, each one tied to work that is finished. Drawing ahead of the work turns a deposit into a loan from the client, and a loan the client never agreed to. Write each draw against the stage it pays for, with the date and the amount, so the client list and the bank statement always tell the same story.
Our guide to holding customer deposits explains why money that belongs to someone else is never spending money, and the separate account is the structure underneath that discipline. The US Internal Revenue Service’s small business guidance covers the record keeping that supports this kind of separation.
Refunds Paid From the Client Account
A refund should be simple, and it is simple when the money is still there. A client money separate account deposits retainers held routine pays every refund from the client account, against that client’s balance, so the refund never touches this week’s wages. The client is repaid promptly, the record is clean, and the trading account never feels the loss of money it never owned.
Our guide to retention money in building and repair work shows the mirror image of this habit: money held back from you, planned for in advance. Both habits rest on the same rule: know whose money it is, and keep it where it belongs. The same care applies when a job ends early: the unearned part of the deposit goes back to the client, and the earned part moves to the trading account, each with its own entry.
FAQ
Does every business need a separate client account?
Any business that takes deposits or retainers benefits from one. A client money separate account deposits retainers held routine keeps other people’s money out of the spending account, whatever the size of the business.
What if the agreement does not set stages?
Then write them down before the next deposit arrives. Agree the stages with the client, in writing, so both sides know when money moves and what work it pays for. Without written stages, every draw becomes a judgement call, and judgement calls are where disputes begin.
Can I ever borrow from the client account?
No, not even for a day. Borrowing turns a deposit into a loan the client never agreed to, and a short loan that is not repaid on time becomes a dispute. Keep the boundary absolute.
What if a client cancels before the work is done?
Pay back the unearned balance from the client account, promptly, and record it against that client’s balance. The money was still there because it was never spent, so the refund is a simple entry, not a crisis.
Conclusion: Other People’s Money, Its Own Home
A sound client money separate account deposits retainers held routine is three habits: pay every deposit into the separate account on the day it arrives, list each client’s balance on one page, and draw money only when the work is done. Then a refund is never a raid on wages.
If client-money discipline is one of several money habits you are tightening this year, BCC Financial’s Financial Planning guides apply the same discipline to the rest of your reserves. Regulated readers should follow their own regulator’s client-money rules first.
This article is general educational information only and is not financial advice. Your firm’s facts will differ, so consider seeking professional advice before deciding on your business.
