Despite all the talk about the "cashless" economy — paying bills through your cell phone, automatic debiting, etc. — law firms still are largely cash businesses whose customers pay by personal or business checks that physically must be deposited in the firms' bank accounts.
The check deposit transaction is the start of the entire cash management process, and the first rule of cash management is to be prompt and efficient in depositing checks received from clients. Once you have the client's check in hand, never wait to deposit it.
Otherwise, too many problems can happen: The client may become angry and stop payment, have insufficient funds when the check is finally presented for clearance, or become party to a lawsuit or other proceeding in which financial assets are attached.
Family law practices are particularly vulnerable to problems, as clients may file for bankruptcy after a divorce to get rid of their debt.
Deposit all checks even if the amount received does not match the amount due per the statement. Make a photocopy of the check. After making the deposit, call the client and ask for an explanation of the difference. You will ultimately reconcile the amount paid with the amount due; however, in the meantime, you will have deposited and benefited from the amount sent to you. The only exception is when there is a disputed claim, and a check is marked "paid in full" with the check amount being less than the amount owed.
Another form of payment by check is a bank draft. It can be deposited into your account but must be returned to the bank account of the person who made the draft to get approved before cash can be placed into yours. Banks can refuse any deposit for any reason and may do so with a bank draft.
Cashing rather than depositing the draft could be a solution. By doing so, the liability for any dispute or failure to cover the draft is on the account holder. However, remember that the bank can assert that it does not assume liability in such instances.
Depositing or cashing checks personally may seem inconvenient, but it has two specific benefits. The first is as a safeguard against financial fraud. By going to the bank in person, you confirm a chain of possession for your receivables, such that no other person in your office can "forget" to make a deposit or lose track of deposit receipts. It should be part of a system of checks and balances that no one person, or even several persons in collusion, can circumvent in handling funds and financial records.
A second advantage of personal deposit is that it enables you to establish a better business relationship with your bank. You become an individual, not a name or number.
That can have a variety of positive benefits, beginning with the likelihood that if an overdraft or check deposit problem arises in the future, you can work out a solution with your personal contact at the bank. That same contact may refer business to you, or be your ally in seeking a loan or credit line.
The real benefit to personal deposits, however, starts with knowing your cash receipts are safe and secure.
