Karen Edwards outlines the benefits and the risks of firms taking credit card payments for client accounts

There are numerous reasons for firms to accept credit card payments, including making it easier for clients to provide money on account or pay invoices, which in turn will have a positive impact on cashflow. Modern technology makes this easy through the use of Apple and Google Pay, which many clients are already using when buying products online or in shops.

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Instructing a lawyer and paying money on account or a firm’s invoices is no different, and by offering credit card payments, you will have opened your firm up to a wider audience.

Card payments

A 2019 report prepared by the software provider, Clio, revealed that firms that didn’t offer simple online payments often missed out on propspective clients and those that did, not only gained clients, but got paid faster. Offering online payments can differentiate you from your competitors, as clients want the convenience of using modern technology.

That said, it really does depend on the legal services you provide and it’s important to do your own market research before starting to receive credit card payments.

So, what are the risks involved if your firm does decide to take credit card payments linked to a client account? First, you should establish the different reasons why a client might pay by credit card including:

  • itigation funding
  • money on account
  • settlement fees
  • disbursements (such as counsel fees)
  • on behalf of a trust
  • liquidator, trustee in bankruptcy or Court of Protection deputy, and
  • payment of firm invoices.

It’s also important to understand the difference between a law firm’s dual system of bookkeeping and accounting. Law firms have a client account and a business account and if your legal cashier / bookkeeper mixes up client money and business money, or if you potentially use the client account as a banking facility, then you will be in breach of the SRA Accounts Rules.

The risks

Any law firm, big or small, should be on high alert for any risks to their business, including receiving credit card payments into a client account.

So, what are the key risks?

1 Credit card recall

If your client has a dispute with your services and they paid your fees by credit card, they could go to their bank and ask for a refund, resulting in a pending debit on the client account. Should this happen, and the matter is not identified promptly, it can create problems for smaller firms or sole practitioners. In some instances, a firm won’t be aware of a credit card recall until their legal cashier spots that those funds have been withdrawn from the client account.

2 Consumer rights

Credit card payments fall under section 75 of the Consumer Credit Act 1974, which also applies to services. Under this section, your client can claim misrepresentation, or claim that your services were not supplied. The credit card company or lender is jointly liable for any breaches and / or misrepresentations by your firm.

3 Improper use of a client account

The Solicitors Regulation Authority (SRA) now has higher fining powers if it finds that a law firm has breached the SRA Standards and Regulations. If the regulator finds that a law firm has been ‘offering’ a client the use of their own client account as a banking facility, it’s a serious breach of the SRA Accounts Rules would likely require submitting a qualified accountant’s report.

Chargeback or clawback?

Chargeback (also known as ‘clawback’) is a procedure that allows your client to challenge a credit card payment made to your firm. However, they can only do this under certain circumstances. Also, their bank will need to see documented evidence before starting any chargeback process, and each lender will have their own chargeback rules.

If you’re a firm providing services where a client has complained and wants their money back, there needs to be sufficient communication with that client to try and resolve the problem in the first instance, in line with your normal complaints procedure.

As a legal service provider, you and your colleagues should be aware of when the Legal Services Ombudsman (LeO) might become involved with a complaint. The LeO needs to determine if the complaint constitutes professional negligence. The Ombudsman comes into play under section 137(5) of the Legal Services Act 2007 which states that:

“The power of the Ombudsman [to direct a remedy] is not confined to cases where the complainant may have a cause of action against the respondent for negligence.”

Any complaints made through the LeO scheme have to be dealt with “quickly and with minimal formality” under section 113(1) of the Legal Services Act 2007. Settlement and a calm resolution are always the best course of action.

[Note that a credit card refund is different to a credit card chargeback.]

Managing risk

Accepting client money by credit card has benefits to firms too. As previously mentioned, offering different payment alternatives makes your firm’s services more appealing to clients who want ease and convenience.

There are effective steps that your firm can (and should) take when it comes to pre-empting any potential issues. Below is a guide to follow when commencing credit card payments into client accounts:

In accordance with rule 2.3 of the SRA Accounts Rules, client money must be paid promptly into a client bank account and rule 4.1 confirms that client money must be kept separate from money belonging to a firm. Therefore, it’s important to ensure that the payment facility is linked to the client account (rather than your business account) to avoid accidental breaches.

2 Understand the requirements under the SRA Accounts Rules

It’s not just the legal cashier that needs to understand the SRA Accounts Rules, but everyone that works in a law firm. Legal secretaries, assistants and paralegals are often involved in the billing process so they should also have knowledge of and confidence in, the rules.

3 Limit credit card payments

It may be worth creating a policy that limits any payments you decide to accept via credit card, both for clawback reasons and because of the transaction costs of processing credit cards. Typically, payment providers will charge a certain percentage of the transaction amount and these costs can no longer be passed onto the client, except in the case of commercial credit cards.

4 Comply with the Anti-money Laundering (AML) Regulations

Law firms that are in scope of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Money Laundering Regulations) must have a written firm-wide risk assessment in place.

5 Training and continuing competence

Investing in yourself, your colleagues or employees is not only important for their own professional development and sense of value, but vital for firmwide compliance and risk management.

The ILFM is the institute for professionals working in legal accounts, compliance and law firm management www.ilfm.org.uk