Understanding
Trust Funds

 

PAYMENT OF INVOICES

TRUST MONEY AND TRUST REQUESTS

 

We understand that going through a legal matter can be mentally exhausting and managing legal bills can be challenging. We hope that this fact sheet will assist you to understand when and why invoices will be issued, and how monies we have asked you to place into our trust account will be applied.

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What is a Trust Account

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A trust account is a bank account that law firms open to take ‘deposits’ from clients for their anticipated legal fees. The account is regulated by the Legal Practice Board of Western Australia and the Uniform Conduct Rules. The trust account is audited every year to ensure clients that their deposits which are held on trust are only applied against the relevant client’s legal costs and expenses. We cannot use any monies held in our trust account on our general business expenses and costs.

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The trust account is completely separate from the firm’s trading account, which receives money from clients in payment of invoices issued and pays the firms expenses and general trading costs.

We may require you to place money into our trust account when you first engage us, or at intervals throughout the term of your matter.

 

Two Types of Money Requests

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Invoices

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1. We will issue you an invoice for the work we have done on your behalf. Our billing cycle is fortnightly, so sometimes you will receive an invoice every 2 weeks, sometimes every 4 weeks, depending on how much work is occurring on your file.

2. We issue regular invoices to make sure you are fully informed about the cost of your matter, and we understand from our clients that they find receiving regular smaller invoices more helpful than irregular large invoices.

3. When you are required to pay the invoices we send to you, you pay that money into our trading account, as you are paying for work we have already performed for you and invoiced to you, rather than a deposit we are taking from you.

4. Our accounts team will send you reminders about your outstanding invoices and our invoices contain a running statement at the bottom showing any previously issued invoices that remain outstanding.

5. If you do not pay your invoices in the time frame we require, then we may stop working on your matter until you have. This is to ensure that we do not continue to incur costs whilst we are not being paid within our payment terms.

 

Trust Account Requests

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1. Depending on your matter, we may request that you pay money into our trust account from time to time, or that you keep a minimum amount of funds in our trust account. As already noted, the purpose of these funds is a “deposit” on account of future work that we will do for you – work we have not yet performed and issued an invoice for.

2. The money we hold in our trust account for you acts as a guarantee for us that we will get paid for the work we do for you. 

3. To be clear, our trust account is a separate account to our trading account. The funds placed into our trust account are there to be applied against future invoices as and when we raise them and any third party costs for things like filing fees, reports, experts, counsel etc.

4. We are required to send you receipts when you pay money into our trust account. We are also required to send you trust account statements when we apply trust money against invoices, refund trust money to you, and at the end of each financial year.

 

Example 1 – No Money in Trust

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1. We issue you an invoice for $500. As you do not have any money in trust with us, when you receive this invoice you must pay it to us within 14 days.  

2. Our accounts team will send you reminders as the invoice approaches the due date.

3. The payment is made into our trading account, as it is for payment of an invoice already raised for work already done.

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Example 2 – Money in Trust is greater than Invoice

 

1. We issue you an invoice for $500 on account of work we have completed.

2. We will send the invoice to you.

3. When we send you that invoice, there will be a cover letter letting you know if we have money on trust to apply to that invoice, and how much money you need to pay into our trading account to cover any shortfall (invoice amount – trust money).

4. If you have a balance of $2,000 in our trust account when we raise that invoice then you will receive a cover email that says that:-

 

       (a)   You have a balance of $2000 in our trust account;

       (b)   That we will apply part of your trust money ($500) in payment of that account;

       (c)    That you do not need to pay the invoice as your trust money covers the invoice in full; and

       (d)   You will have a balance of $1500 left in the trust account after we pay that invoice.

 

Trust Account Balance – Invoice Amount = amount remaining in our trust account on your matter, after the invoice has been paid.

 

$2000- $500 = $1500 remaining in our trust account for future invoices.

 

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Example 3 – Money in Trust is less than Invoice

 

1. We issue you an invoice for $2000 on account of work we have completed.

2. We will send the invoice to you.

3. When we send you that invoice, there will be a cover letter letting you know if we have money on trust to apply to that invoice, and how much money you need to pay into our trading account to cover any shortfall (invoice amount – trust money).

4. If you have a balance of $500 in our trust account when we raise that invoice then you will receive a cover email that says that:-

 

    (a)    You have a balance of $500 in our trust account;

    (b)    That we will apply all of that $500 of your trust money in payment of that account;

    (c)     That you need to pay the balance of the invoice ($1500) into our trading account (as your trust money is                    insufficient to cover the invoice in full); and

    (d)    You will have a balance of $0 trust balance after we pay that invoice.

 

Invoice Amount – Trust Account Balance = amount you have to pay into our trading account

 

$2000- $500 = $1500 remaining to be paid into our trading account to clear the invoice

 

 

Example 4 –Trust Money Top Up Requests

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1. For some matters, we state that there is a minimum amount that you must have in trust with us at all times.

2. If your trust balance goes below that amount, we will request that you pay a top up amount into our trust account to bring the trust balance back up to the minimum amount.

3. If we have another look at example 2 above, but with a minimum trust balance requirement of $2000 then:-

 

       (a)    We issue you an invoice for $500 on account of work we have completed.

       (b)    We will send the invoice to you.

       (c)    When we send you that invoice, there will be a cover letter letting you know if we have money on trust                    to apply to that invoice, and how much money you need to pay into our trading account to cover any                      shortfall (invoice amount – trust money) and whether we require you to top up your trust account                            balance.

       (d)    If you have a balance of $2,000 in our trust account before we raise that invoice then you will receive a                      cover email that says that:-

 

                 (i)     You have a balance of $2000 in our trust account;

                 (ii)    That we will apply part of your trust money ($500) in payment of that account;

                 (iii)   That you do not need to pay the invoice as your trust money covers the invoice in full;

                 (iv)   You will have a balance of $1500 left in the trust account after we pay that invoice; and

                 (v)    As the minimum balance we require you to keep in our trust account is $2,000, we will request you                            pay $500 into our trust account to bring the balance back up to $2000 in anticipation of future                                      work.

 

    4. If we have another look at example 3 above, but with a minimum trust balance requirement of $2000 then:-

 

       (a)     We issue you an invoice for $2000 on account of work we have completed.

       (b)     We will send the invoice to you.

       (c)     When we send you that invoice, there will be a cover letter letting you know if we have money on trust                     to apply to that invoice, and how much money you need to pay into our trading account to cover any                       shortfall (invoice amount – trust money).

        (d)    If you have a balance of $500 in our trust account before we raise that invoice then you will receive a                         cover email that says that:-

 

                 (i)    You have a balance of $500 in our trust account;

                 (ii)   That we will apply all of that $500 of your trust money in payment of that account;

                 (iii)  That you need to pay the balance of the invoice ($1500) into our trading account (as your trust                                    money is insufficient to cover the invoice in full);

                 (iv)   You will have a balance of $0 trust balance after we pay that invoice; and

                 (v)    As the minimum balance we require you to keep in our trust account is $2,000, we will request you                            pay $200 into our trust account to bring the balance back up to $2000 in anticipation for future                                    work.  This request is in addition to the need for you to pay $1500 to clear the outstanding invoice.

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We understand that trust accounting can be confusing and it may be the first time you have engaged a law firm. If you have any questions regarding your accounts with us, please do not hesitate to contact our Finance Team at finance@greenstonelegal.com.au