Recording fees moved from trust to the business account
How a South African law practice records a fee moved from trust to its business account, so the fee note shows paid and trust money stays out of the books.
By Achekam · · 5 min read · For Legal businesses in South Africa
At the end of a conveyancing matter, the practice moves its fee from the trust account to the business account. On the trust side, that is a withdrawal against the client's balance. On the business side, a deposit appears on the bank statement. And in the business books, the fee note for that matter still shows as unpaid, because nobody connected the deposit to it. Months later the debtors list is full of fee notes that were settled long ago, and the business account has receipts nobody can explain.
The fix is a simple sequence followed every time: fee note first, transfer second, receipt third, reconciliation last. This piece sets out that sequence for a South African practice, and explains why trust money itself never enters the business books.
Trust money is the client's until the fee is earned
Section 86(1) of the Legal Practice Act requires every legal practitioner referred to in section 84(1) to operate a trust account. Money in that account is held for clients, not owned by the practice.
Investopedia explains the general principle behind retainers: an unearned retainer does not belong to the professional until work begins, and the earned portion accrues as work is done, by hours worked or by tasks or milestones. For a law practice, money in trust becomes the practice's only once a fee has been earned and properly billed against it. Until that point, it is not income, and it has no place in the business ledger.
Deposits go into trust promptly, at the right bank
Section 86(2) requires every trust account practice to keep its trust account at a bank with which the Fund has an arrangement under section 63(1)(g), and to deposit money held on behalf of any person into it as soon as possible after receipt. The Legal Practitioners Fidelity Fund repeats the duty in its own guidance on trust accounts, citing section 86(1) and (2).
That governs the start of the chain. Money a client pays towards costs, a purchase price or future fees goes into trust first. It reaches the business account only by a transfer, after a fee note has been issued.
No holding client money without a Fidelity Fund certificate
The Legal Practice Council says that a practitioner who needs a Fidelity Fund Certificate, and anyone they employ or supervise, may not receive or hold money or property belonging to anyone unless the practitioner holds a valid certificate. If the certificate lapses, the practice must not be receiving client money at all, whatever the books show.
Issue the fee note before any transfer
A transfer from trust must be backed by a fee note that already exists. In Achekam, invoices begin as drafts that can be edited or deleted. Issuing one gives it the next number in the practice's sequence and posts it to the ledger as debtors, sales and output VAT, with default terms of 30 days unless the practice changes them.
So the order is:
- Prepare the fee note as a draft and check it against the mandate and the time recorded.
- Issue it, which posts the fee and the VAT to the business ledger.
- Only then make the transfer from trust, for exactly the amount of the fee note, or the part of it the trust balance can cover.
Taking fee notes from draft to issued explains the checks before issue in more detail.
Record the transfer as a receipt against the fee note
When the transfer reaches the business account, record it as the client's payment of that fee note. Achekam records customer payments against one invoice or spread across a customer's invoices. A part payment leaves the invoice part-paid, and anything paid over the total is held on the customer's account. If the trust balance covers only part of the fee note, the remainder stays open, which is accurate: the client still owes it.
Use the fee note number as the reference on the trust transfer. That single habit makes the match obvious to whoever records the receipt, and to the auditor later. Where someone other than the client pays the fee, a third party paying a fee account covers how to record it.
Reconcile the business account only
The business books in Achekam hold the business bank account. Trust records stay in the practice's trust accounting system, which is where the client trust ledgers and the trust bank reconciliation belong.
For the business account, a statement can be imported as PDF, CSV, Excel, OFX, QIF, MT940 or CAMT.053, and each import is checked so that the opening balance plus the movements equals the closing balance. 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, and the reconciliation completes only once the difference is nil or every leftover line has an explanation.
A transfer from trust should match a receipt already recorded against a fee note. If one turns up unmatched, do not post it as general income. Find the fee note it belongs to, record the receipt, and then match it. An unexplained transfer from trust is exactly the kind of item a trust auditor will ask about.
A monthly check for the bookkeeper
- Every transfer from trust this month matches a fee note issued before it.
- Every such transfer is recorded as a receipt against that fee note.
- No trust deposit appears anywhere in the business books.
- The business bank reconciliation is complete, with nothing left unexplained.
At the end of a matter, the same discipline leads into the final account; closing a matter with a final account takes it from there. The text of section 86 of the Legal Practice Act on Acts Online sets out the trust account duties this sequence protects.
Put the four-step order on the wall by the bookkeeper's desk: fee note, transfer, receipt, reconciliation. Followed every time, it keeps the debtors list honest and the trust money where it belongs.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
