A separate bank account for money held for others
How a brokerage sets up, reconciles and signs off a separate bank account for premiums and claim payments it holds for clients or insurers.
By Achekam · · 5 min read · For Insurance businesses in South Africa, Nigeria, Kenya
Some of the money that passes through a brokerage is not the brokerage's at all. A client pays a premium that must go on to the insurer. An insurer settles a claim through the broker, and the money belongs to the client. A cancelled policy produces a refund that is the client's to receive. For a few days or weeks, the brokerage holds it.
Held in the office account, that money is easy to spend by accident. The rent goes off on the first, the balance looks healthy because a claim payment just arrived, and by the time the client's money is due to leave, part of it has paid the landlord. This article explains how a brokerage in South Africa, Nigeria or Kenya can keep a separate bank account for money held for others, record it properly in Achekam, and prove each month that it is all still there.
Why money held for others needs its own account
A separate account does three things a note in the books cannot:
- it stops the brokerage's own payments drawing on money it does not own;
- it makes the balance easy to prove, because everything in the account belongs to someone else;
- it shows insurers, clients and regulators that the brokerage takes the duty seriously.
Whether your brokerage may hold premiums or claim payments at all, and on what terms, is set by your licence and the insurance law in your country. Your compliance officer and auditor will tell you what applies. This article covers the bookkeeping that follows once you do hold such money.
Setting up the bank and liability accounts
Each business has its own double-entry ledger with a standard chart of accounts created when the books first open, and accounts can be added, renamed or switched off. Add two kinds of account for client money:
| Account | Type | Purpose |
|---|---|---|
| Bank: money held for others | Bank (asset) | Mirrors the separate bank account |
| Premiums held for insurers | Liability | What you owe insurers from that account |
| Claims and refunds held for clients | Liability | What you owe clients from that account |
The rule that keeps everything honest is that, after each transaction, the bank account's balance should equal the two liability balances added together. Money in raises both sides; money out lowers both sides. Nothing in this account ever touches commission income, fee income or an expense account.
Name the accounts plainly. A future bookkeeper should understand from the name alone that the money is not the brokerage's.
Importing and reconciling the statement
Import the separate account's statement just as you import the office account's. A business imports bank statements as PDF, CSV, Excel, OFX, QIF, MT940 or CAMT.053, and each import is checked so that the opening balance plus movements equals the closing balance. If the check fails, a page or a line is missing; find it before going further.
Then reconcile. Bank lines are matched by suggestion and a person accepts each match. A line not yet in the books becomes a suggested journal a person approves. For this account, the person approving needs to choose the right liability every time:
- a client's premium received: the bank line against Premiums held for insurers;
- a premium paid on to an insurer: Premiums held for insurers against the bank line;
- a claim settlement received: the bank line against Claims and refunds held for clients;
- a claim paid out to the client: Claims and refunds held for clients against the bank line.
A reconciliation completes only when there is no difference left or every leftover line is explained. In a client money account, an unexplained line is not a nuisance to clear; it is a question about someone else's money, and it should be answered the same week. Where a correction is needed, a business can post manual journals, and a posted journal is corrected only by a reversal, so the history of every adjustment stays visible.
Never paying office costs from it
Most mistakes with client money are not theft. They are the wrong account chosen on a busy afternoon.
A business records supplier bills line by line with VAT, and a bill can be paid in full or in parts from a chosen bank account. That choice is the danger point. Make it a written rule that only the office account is ever chosen to pay the brokerage's own bills, and tell everyone who pays suppliers. If the client money account is ever chosen by mistake, correct it at once with a reversal and a transfer from the office account, and note what happened.
Other habits help:
- Give fewer people payment rights on the bank's own platform for the separate account.
- Do not link the separate account to debit orders for office costs.
- Never transfer from the separate account to the office account except for amounts that have become the brokerage's, such as an agreed fee, and record why each time.
A monthly sign-off
At month end, one person prepares and a different person signs off.
- Reconcile the separate account to the bank statement, with nothing unexplained.
- Run the trial balance at the month-end date. It shows each account for all time, for a period or at a date, and says whether debits equal credits.
- Confirm the bank account's balance equals the two liability balances together.
- List what is held, insurer by insurer and client by client, and check the list adds up to the liabilities.
- Look for anything held unusually long, such as a refund the client never collected, and decide what to do about it.
- Sign and date the list, and keep it with the statements.
The AccountingTools walk-through of the bank reconciliation process explains how the company's cash records are compared with the bank statement and adjusted, and is a useful reference for anyone new to the job.
Then close the month. Months can be soft-closed, hard-closed and locked, a closed month refuses postings from every source, and reopening a hard close needs a second approver. Locking the month is what turns your sign-off into a record nobody can quietly change; locking closed months explains the stages. The office account's own reconciliation, where insurers' commission arrives, is covered in reconciling commission paid by insurers.
Start this month
Open the accounts in the chart, import the separate account's statements from the start of the year, and build the list of what is held. If the first sign-off reveals a gap, you have found it yourself, which is far better than an auditor or a client finding it for you.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
