Information on Merchant Accounts,
Ecommerce and Credit Card Processing

March 24th, 2022 by J B

Attorneys: Avoid accidental commingling of funds (Payments and IOLTAs)

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This comes up more often than you might think, many attorneys out there misunderstand how payment processing may cause accidental commingling of funds if not set up correctly. While attorneys are familiar with IOLTAs, a trust account used to hold clients’ funds, they don’t always recognize the path they may be taking to fund an IOLTA could cause accidental commingling.

Generally, speaking attorneys who may be handling client funds will have at least one operating account used for accepting payment on complete work and running business operations. They will then have a second account for storing client funds like retainers or other funds that belong to their clients. While that seems easy enough getting funds into the trust account isn’t always so simple.

Sure if a client has the ability to write a check to your IOLTA account its just a matter of depositing the check. Its similar with Cash assuming you have the IOLTA account at a local bank branch where you can make the deposit. You see you can’t just deposit funds into your operating account and then transfer the same sum to the IOLTA. Yes, in effect it accomplishes the same thing, however, the rules are set up to prevent a law office from ever having direct access to their client’s funds.

It gets even more complicated when a client wants to pay on a credit or debit card. Many attorneys accept credit cards for payments for work completed but those depositing go to their operating account. Some attorneys like to set up a separate merchant account that allows them to accept credit and debit card payments that deposit directly to their IOLTA account. What people tend to not think about are the payment processing fees.

Imagine you get an IOLTA setup you add a merchant account as an additional way to fund that account and you figure you’re all set. The funds never hit the operating account, so many feel like they are in compliance. This still isn’t a perfect setup as the processing fees are charged to the IOLTA which is a cost of doing business that should be applied against the operating account, which is not allowed.

That said it is very easy to set this up right the first time. Its key to be clear with your payments provider about what you are doing and explain that you need the funds to deposit directly to the IOLTA account and any and all fees be applied to the operating account. This should not require any additional paperwork than a normal merchant account setup aside from maybe a second voided check or a bank letter. Generally, you will need to submit a voided check for each bank account that the payments provider will be accessing.

Most payment devices can even be made to support multiple merchant accounts meaning you don’t usually need additional hardware. We even have ways to accept payments via a web interface so you can operate from anywhere and don’t need any equipment at all.

If you have any questions about properly handling processing clients’ funds please reach out to us. We would be happy to tell you about options and make sure you get on the right path. It really is a simple setup and the right way to handle those funds.

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