7 Tips to Protecting Client Money
Everyone knows that keeping tabs on cash is important, especially when handling other people’s money. But the final accounting has nothing on the day-to-day reality and responsibilities of being a business owner. In practice, it can be easy to accidentally spend money in the wrong place or fail to account for some expenses altogether. It’s not just about balancing chequebooks; safeguarding client trust and your business reputation are also at stake. To help you protect your clients’ funds with confidence and ease, here are seven tips for safeguarding client money effectively:
Always keep client money in a separate account
If you’re currently holding clients’ funds in the same account that you use to pay company bills, that is a big mistake. Not only is it a bad PR move, but it also opens up your company to significant risk in the event that your account is compromised. The best way to safeguard your clients’ funds is with a separate account that only holds those funds. If you use a virtual account, it’s an even better solution, as it keeps clients’ funds completely separate from your business assets. With a virtual account, you’ll also have access to a separate debit card for the account that you can use to pay for company expenses.
Document all business expenses carefully
Keeping meticulous track of your business expenses is important for a number of reasons. It can help you avoid getting audited, reduce the risk of employee theft, and even help you stay compliant with your insurance providers. There are a few different strategies you can use to document your business expenses: Paper: If you have a small business with a low volume of expenses, like basic accounting and advertising, a paper-based system could work just as well as a digital one. However, if your company’s expenses are higher, it may be more beneficial to go digital. For digital systems, you can use a spreadsheet, a dedicated expense-management software, or an accounting software like QuickBooks Online. Whichever system you choose, make sure to keep all receipts and clearly label each one with both the expense amount and the amount being reimbursed to the person who incurred the expense.
Be diligent with your taxes
This may sound obvious, but it’s important to be diligent about keeping accurate records of your clients’ money in your separate accounts. This makes it easier for you to accurately report those funds on tax returns. It also means you’ll be prepared for any tax audits. If you’re audited, you’ll be able to clearly report your clients’ money in your separate accounts and how you’ve handled it. Keep accurate and thorough records related to your clients’ funds in separate accounts, and you’ll have a much easier time staying in compliance with income taxes.
Be wary of sign-off authority
Many businesses have a sign-off authority, where employees can approve payments to third parties with a signature. With this process, employees can approve payments up to a certain amount by signing off on the transaction with their name. If you use this strategy, make sure employees understand that you’ll be checking to make sure they actually incurred the expense they’re approving. For larger payments, you’ll likely have to have them approved by the owner(s) of the business. Make sure these large payments are documented and accounted for.
Don’t let employees handle client money unsupervised
Some businesses use multiple accounts for client funds and for company profits. If you do, make sure employees are fully aware of which account holds which funds. Even if you keep client money in a separate account, employees can often see the amount of money in that account. If they know how much money is in the account, they can be tempted to dip into it for company expenses. For example, if your company makes $10,000 in profit and $9,000 is in one account and $1,000 is in a separate account, it’s easy to know which account to steal from.
Have a cash-management strategy in place
If you have employees and are handling both company profits and client funds in a single account, you’ll want to create and follow a strict cash-management strategy to ensure those funds are kept separate. Make sure each employee’s paycheck is taken directly out of the separate account that holds only company profits. This ensures that their wages don’t get mixed up with client funds in the account. You can also set up direct deposit for client payments and include a clause in the contract that client payments are due on the first of each month. If you’re handling client funds in a virtual account, you’ll want to make sure you have a strict cash-management strategy in place.
Final words
Accountability, integrity, and trustworthiness are some of the most important aspects of running a successful business. If you handle client money incorrectly, you risk losing all three. Follow these seven tips to protect your clients’ funds with confidence and ease: Always keep client money in a separate account, document all business expenses carefully, be diligent with your taxes, be wary of sign-off authority, and don’t let employees handle client money unsupervised, and have a cash-management strategy in place. With these tips in mind, you can rest assured that you’re keeping clients’ funds safe and sound.
