What are client accounts and should you be using them ?

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March 30, 2021
May 4, 2021

What is a client bank account?

In response to the rise of small businesses asking to outsource payments to their accountants, some accounting firms have put segregated client bank accounts in place. Meaning, they'll request that clients deposit funds into the accounting firm’s client account so they can then go ahead and pay the wages of employees or suppliers of the business.

Client accounts are most often used in the professional services industry by accounting firms and solicitors for the purpose of holding and managing client funds. Client accounts can be used as an alternative to bank mandates.

Advantages of a client account

This mechanism benefits the accounting firm as they can control the payment workflow. 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 a scalability point of view.

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

We totally understand why accounting firms would have gone for this option, however, the regulatory landscape has changed dramatically since the inception of the Payment Services Directive (PSD2), an EU Directive which sets requirements for firms that provide payment services.

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. The great news is, that there are ways to circumvent getting regulated yourself which might be the right choice for some firms.

Alternatives to client accounts

Instead of touching client funds, you can simply open client holding accounts with the business client as the account holder. This is the model that Telleroo operate - making sure that at no point in time you, as the accountant, would hold on to any client funds. Not only is this great from a liability perspective, as the funds belong to the client business, but Telleroo's automated approvals process allows you to set up payments within the agreed terms.

As an accountant, bookkeeper or finance professional, you can take advantage of the Telleroo platform, by signing up to our partner portal today.