Switching bank accounts – a legal cashier’s tale

Sarah Charlton, chief executive officer at BlueSky Legal Finance Solutions, explains how law firms can switch bank accounts in the smoothest manner possible.

I think it’s fair to say that a lot has been done within the banking industry over recent years to make it much easier for businesses to physical switch current bank accounts.  This is a ‘good news story’ for law firms who want the flexibility to move, which has become more common in recent years not just because of pricing but also the more dynamic, ethical or environmental banking institutions that are now on the market.

Unfortunately, it is often a different story when it comes to aligning your accounting records with the new bank accounts.  Good planning, adequate accounting software and technical cashiering knowledge can influence the success or failure of implementing a new bank account.

The first step to switching a bank account is to create a new cashbook (bank account) within your accounting software. Ensure that you have received your cheque books and paying-in books, and that any electronic banking software platforms have been activated.

The second step would be to double check the physical bank statements. If it is a client account, the word ‘client’ must be in full (it cannot be abbreviated)- see SRA AR 2019 3.2(b).  Also check the name on the client account exactly matches the name that the SRA have authorised – see SRA AR 2019 3.2(a). This may be different to your trading name – you can go onto the Law Society’s ‘find a solicitor’ guide to double check the precise name that has been authorised by the SRA.  You should set up user profiles on any online banking platform and make sure the relevant members of staff have appropriate access (inputter and authoriser could be different) and dual authorisations (perhaps over a set value), and that other safeguards are all in place and have been appropriately tested.

You then have two approaches available – a complete switch on an agreed day (I would recommend the 1st of the month) to the new bank account. Standing orders, direct debits and unpaid cheques or outstanding lodgements will all be redirected to the new bank account. Alternatively, you may wish to run the two bank accounts in tandem, using your new bank account for all new matters.

I would recommend you consider reviewing all unpaid cheques that are over three months old, unless they are payable to a government organisation such as HMCTS or HMRC. I would look to investigate the remaining cheques, starting with the highest value first. Many law firms operate two client accounts to provide a contingency for any serious banking failures, as have been seen in previous years. You therefore may wish to continue to keep your original bank account open for this purpose.

Before you start using your new bank account, change your ‘default’ cashbook on your accounting software to the new cashbook/s. Otherwise, the software is likely to continue to write any new postings to the old bank account.  It would also be good practice during the initial weeks and months to regularly run a cashbook report, by individual cashbook. This would provide you with early visibility of any cashbook posting errors.

If you are making a complete switch to the new bank account there are a number of additional steps that you would need to take. For a full practice note on this topic please e-mail Hello@blueskylegalfinancesolutions.com, LPM readers can receive a complimentary electronic copy.