What are client funds?

Client funds are monies held by a firm on behalf of clients, distinct from the firm's own operating funds. For professional service firms, client funds might include retainers, expense advances, or funds held in trust, requiring careful tracking and compliance with applicable regulations.

Key characteristics

• Money held on behalf of clients

• Separate from firm operating funds

• May have regulatory requirements

• Requires careful tracking

• Should be held in separate accounts

• Must be properly documented

Why it matters for professional service firms

Client funds are not the firm's money and must be handled accordingly. Commingling or misusing client funds creates legal, ethical, and relationship problems. Professional service firms holding client funds should maintain separate accounts, track balances meticulously, and comply with any applicable regulations.

Real-world example

Lisa's consulting firm collected expense advances from clients. Initially deposited into the operating account without tracking. Problems: unclear how much belonged to clients versus the firm, advances sometimes used for operations, and reconciliation is impossible. Implementing proper client funds handling: separate client funds account, individual tracking by client, monthly reconciliation, and clear policy on usage and return of unused amounts. Audit found no issues; client trust increased through professional handling.