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What are client accounts and should you be using them ?

July 15, 2020

Setting up client payments such as payroll or supplier payments for small business clients will leave you with limited options in the marketplace. We have seen some accounting firms operating their own client bank account to do so and have looked into the benefits and possible restrictions of making payments on behalf of clients through your own client bank account.

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What is a client bank account?

In response to small business clients demanding to outsource their payments, some accounting firms have put segregated client bank accounts in place. Meaning, they request their business customers to deposit funds into the accounting firm’s client account to then go ahead and pay wages or suppliers of the business.

Advantages of a client account

This mechanism comes with the benefit to the accounting firm of controlling the workflow of making bank payments. Instead of getting a bank mandate to access your clients’ bank account, you can simply use one workflow for all clients - definitely a plus from a scalability point of view.

Another benefit of operating your own client account is pricing as you as the accounting firm can negotiate one price for payment fees rather than having to do so separately for all clients.

We totally understand why accounting firm would have gone for this option, however, the regulatory landscape has changed dramatically since the inception of PSD2.

Disadvantages of a client account

Using a client account looks a lot like remittance as defined by the FCA, essentially saying if you take money from your client for the sole purpose of disbursing funds to payees such as employees or suppliers this is considered a regulated activity.

Other industries such as recruitment, or real estate agencies suffer similar challenges. Great news, there are ways to circumvent getting regulated yourself which still might be the right choice for some firms.

What are your other options

Instead of touching client funds you can simply open client holding accounts with the business client as the account holder. We at Telleroo exactly operate this model - making sure at no point in time you would hold on to any client funds. Which is also great from a liability point of view as the funds belong to the business and you would get permission to set up payments within agreed terms.

To take advantage of this simply get your own demo account here and see for yourself. Telleroo is one unified way for accounting firms to make payments on behalf of small business clients.

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