Client Money and Account Segregation: A Guide for Sole Practitioners

How client money rules work for sole practitioners and small firms; the practical steps to stay SRA-compliant when you're the only fee earner, the MLRO, and the COLP all at once.

Sole practitioners face a particular version of the SRA Accounts Rules. The rules are the same; client money must be kept separate from firm money, reconciled regularly, and used only for the client's matter. But when you're the only person in the firm, there's no one to double-check, no one to catch the error, and no one to do the reconciliation if you're in court all day.

This guide covers the practical realities of managing client money as a sole practitioner; what the rules require, how to set up your accounts, and how to stay compliant without it taking over your week.

Why sole practitioners are at higher risk

Sole practitioners are more likely to have Accounts Rules issues for several reasons:

No segregation of duties; the person handling client money is also the fee earner, the MLRO, and the COLP. There's no second pair of eyes
Time pressure; when you're doing everything, the reconciliation is the first thing to slip
Volume; with fewer matters, each one matters more, and a single unclosed file with a residual balance is a higher percentage of your caseload
Banking arrangements; some sole practitioners still use personal accounts or joint accounts, which is a clear breach

The SRA knows this. Sole practitioner firms are regularly inspected, and the findings are often about client money; failed reconciliations, residual balances, and unauthorised transfers.

Setting up your accounts

The two-account structure

Every firm holding client money must have at least two bank accounts:

Client account; for holding client money (payments on account, disbursements to be paid, funds held for the client)
Office account; for the firm's own money (fees earned, operating expenses, salaries)

These must be at the same or different banks, but they must be separate accounts. The client account must be clearly named with the word "client" in the account name; e.g., "A. Gordon Client Account."

Do you need a client account?

Not every sole practitioner needs a client account. If you never hold client money; if you only ever bill after the work is done and the client pays directly; you may not need one. But in practice, most firms do hold client money at some point:

Conveyancing; you hold the purchase price and deposit
Probate; you hold estate funds
Litigation; you hold payments on account for disbursements
Even fixed-fee work; the client may pay in advance, which is client money until the work is billed

If you hold client money even occasionally, you need a client account. Setting one up after you've already received client money is too late; the money must go to a client account from the moment it arrives.

Banking requirements

The client account must be:

At a bank or building society in the UK
Clearly designated as a client account (the name must include "client")
Separate from the office account; not a sub-account or a separate ledger within the same account
Able to be reconciled independently

Some banks offer specific "client account" products for law firms. These often include features like dual authorisation for withdrawals (useful even for sole practitioners; you can set it up with your reporting accountant or a trusted contact as the second authoriser).

Day-to-day client money management

Receiving money from clients

When a client pays money to the firm:

Card payment via Stripe; the payment is received into the firm's account and automatically allocated to the correct matter and the correct ledger (client or office)
Bank transfer; the money arrives in the client account; the firm records it against the correct matter in the ledger
Cheque; increasingly rare, but if received, it should be paid into the client account (unless it's clearly payment of an invoice, in which case it goes to the office account)

Paying money out

When the firm pays money from the client account:

Disbursements; pay search fees, court fees, counsel fees from the client account (with documentation: invoice or receipt)
Transfers to office; transfer the firm's fees from the client account to the office account ONLY after issuing a bill and with the client's authority (documented in the client care letter)
Refunds; return surplus funds to the client after the matter closes

Every payment from the client account must be documented. See our SRA Accounts Rules guide for the full requirements.

Reconciling

The reconciliation must compare:

The client bank account statement balance
The client account ledger balance (the total of all client balances in the practice management system)
The sum of individual client balances

All three must match. If they don't, the difference must be identified and resolved.

For sole practitioners, the recommended approach is:

Reconcile monthly (within the 5-week SRA requirement)
Do it on the same day each month; make it a habit, not a "when I get to it" task
Use practice management software that automates the reconciliation; manual spreadsheets are where errors hide

Common sole practitioner problems

Using the wrong account

The most common problem is paying client money into the office account; or the firm's own money into the client account. This happens when:

The client sends money without specifying which account, and it goes to the firm's general account
The firm's bank automatically nets all accounts together
The fee earner doesn't realise the money is client money (e.g., a payment on account that should go to the client account but is treated as fee income)

The fix is simple: set up your banking so that payments are clearly directed to the right account, and check every receipt to confirm it went to the right place.

Residual balances

After a matter closes, small amounts left in the client account are a persistent problem for sole practitioners. The matter is done, the client has moved on, and the £50 balance sits there. See our file closure guide for how to deal with this; the key is to clear the balance as part of the closure process, not leave it for later.

No documentation for withdrawals

Sole practitioners often withdraw from the client account based on their own knowledge of the matter, without creating the paper trail. The SRA expects documentation; an invoice for a fee transfer, a receipt for a disbursement. If there's no document, it's not a valid withdrawal.

Delayed reconciliation

When you're the only fee earner, the reconciliation is the lowest priority; until the SRA asks for it. Don't let it slip. Monthly reconciliation is the minimum, and it's much easier to do it every month than to reconstruct 6 months of transactions in a panic before an SRA inspection.

Where OrdoLux fits

OrdoLux is designed for small firms and sole practitioners; the platform handles the SRA-compliant ledger automatically, so client and office money is always correctly separated, every transaction is documented, and the reconciliation is built into the system rather than maintained on a spreadsheet.

OrdoLux also includes Stripe for card payments (with automatic allocation to client or office account), Checkboard for KYC and AML, WhatsApp time capture (log time from your phone between court appearances), and SharePoint document storage; all in one matter-centric workspace, priced per user with no per-module costs.

See all features or book a demo.