What are client accounts and should you be using them ?

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Posted on
September 14, 2021
Topics
Accounting
Banking

What are client accounts and should you be using them ?

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 so they can then go ahead and pay the wages of employees 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 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 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. The great news is, that there are ways to circumvent getting regulated yourself which 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. 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.