2. Accounting records for client accounts… Rule 29.5
“A cheque or draft received on behalf of a client and endorsed over (to the client or third party), not passing through a client account, must be recorded in the books of account as a receipt and payment on behalf of the client. The same applies for cash received and not deposited in a client account but paid out to, or on behalf of, the client.”
We strongly recommend that a cheque made payable to your firm is never endorsed over to a client. This is because the rule specifically states that a cheque, not passing through the client account must be recorded in the books. If the cheque is paid in to the client account it will naturally be recorded on the system. If it is not, there is more scope for the cheque to be omitted from your records, thus causing a breach of the rules.
3. Cheques payable to your client
It is also important to remember that cheques received which are made payable to your client and not your firm, and forwarded to that client, should also be recorded.The SRA have issued a guidance note as follows:
Accounting records for client accounts (SRA Guidance note iii)
“A cheque made payable to a client, which is forwarded to the client by you, is not client money and falls outside the rules, although it is advisable to record the action date.”
In cases such as these, we would recommend that you record incoming cheques on a daily basis, as part of your ‘Cheque Received Register’ and instead of recording the banking date, recording the date the cheque was forwarded to the client. This will be the minimum required to comply with best practice.