Alex Holt, director of business development at The Cashroom, offers guidance on how to make sure your legal cashiering is a strength of the firm – not a weakness. (20 May 2021)
Legal cashiering may once have been seen as a routine support function, but has now assumed added prominence – both to meet professional regulatory standards, and in the face of growing cyber attacks on law firm accounts. It is often a function that is ripe for cost savings and increased efficiency. At the same time, a generation of experienced cashiers is moving into retirement, which is speeding up the rate of change.
Whether you are a partner, a member of the senior management team or act as the firm’s compliance officer for finance and administration (COFA), you need to be sure that your firm is taking the right approach to legal cashiering.
Legal cashiering basics
Legal cashiering provides the backbone to the firm’s financial management. That typically includes:
- keeping accounting records up to date
- receiving and making payments (a particularly high risk area) for both the office and client accounts
- reconciling records against bank accounts
- preparing and submitting VAT returns
- checking for errors or compliance breaches
Legal cashiering provides the data that feeds into management reports, and the auditable records needed for HMRC and SRA compliance. The legal cashier is likely to be actively involved providing information during any compliance inspection.
Compliance and cashiering
Legal cashiering is a critical part of the firm’s compliance.
At a basic level, the firm must keep accurate financial records – and be able to demonstrate that this is the case. Record-keeping is at the heart of complying with the SRA Accounts Rules and HMRC’s requirements, helping the firm submit timely and accurate returns.
Legal cashiers have a key role in ensuring compliance with the detailed requirements of the Accounts Rules. For example, carrying out client account reconciliations, making sure that residual balances are paid to clients, recording breaches and notifying the firm’s COFA.
Equally, your legal cashiers have a part to play in ensuring anti-money laundering (AML) compliance, data security / data protection, and keeping client funds safe.
More broadly, effective cashiering is part of the requirement for firms to have sound financial and risk management, and to protect client money and assets. Putting in place the right processes can be challenging, particularly for smaller firms which may not have extensive in-house expertise.
It may sound like – and sometimes is – an extensive compliance burden. But at the same time, good systems deliver improved financial management and a reduced level of risk. The right approach offers quicker (and so less costly) audits, and the potential for reduced PII claims and costs.
"Robust systems around payment authorisations are vital. Practice areas involving large amounts of client funds - like conveyancing - are attractive targets for fraudsters"
Chris Harris, managing director, Practical Vision
Understanding – and managing – how legal cashiers interact with other people is vital. Cashiering is primarily a back-office role, working within the finance function and with the management team. But the cashier’s role in administering client funds and collecting fees can involve them with both fee-earners and clients themselves.
Whether you employ in-house cashiers or use an outsourced service, clearly defining individuals’ roles and how they will work together is key. What will be the relationship between cashiers and fee-earners in managing lock-up – particularly in terms of the responsibility and procedures for chasing overdue payments?
Efficient cashiering – for example, monitoring payments coming into the firm’s bank account and immediately triggering the next action – can greatly affect the transactional performance of a firm. The timely issue of fee notes alone can make an important contribution to the firm’s cash flow. But at the same time, fee-earners may be concerned about the potential impact on client relationships from over-enthusiastic credit control. Your aim is to resolve this tension in a way which suits both the firm and the individuals involved.
"Taking on a legal cashiering service freed up valuable time for us to spend on business development and earning fees. It was an important step in our firm's early growth."
Mark Thompson, director, Complete Convey
Outsourcing vs in-house cashiers
Outsourcing of legal cashiering can offer significant advantages, for all but the largest law firms.
- The cost savings are significant. You can expect to save about 30% on the equivalent in-house salary cost. You also lose the associated costs of recruitment, training, monitoring and supervision, office space and equipment.
- Using an experienced provider gives you immediate access to specialist expertise, rather than needing to invest in training your own staff. This expertise should include making the best use of your case management system.
- A good provider should also be expected to stay up to date with regulatory developments and ensure compliance.
- Efficiencies can often be achieved in activities such as conveyancing, where quick, secure and efficient movement of money is vitally important. Well organised processes should lead to greater speed and reliability.
- Accurate, timely cashiering should help to improve the quality of the firm’s management information.
- An outsourced team offers continuity of service provision. Cover is automatically provided when individuals go on holiday or are ill.
Outsourcing can also offer a more flexible cost structure, with fees linked to the volume of transactions – so that your costs automatically scale with your workload. You can fully outsource, or you can choose to outsource specific elements of your cashiering.
Against these advantages, you’ll want to take into account the initial challenge of finding the right provider, setting up new systems and so on. As with any outsourcing, you’ll need to address issues like confidentiality and data protection, how you manage quality of service and the relationship with your provider. The Law Society’s practice note on outsourcing outlines the key issues.
Perhaps the biggest disruption will be the need to think through what legal cashiering you need and what systems are needed to support this – while also dealing with resistance to change within the firm. While this may seem unwelcome, it is an opportunity to look at how you can improve your approach. Taking on an outsourced provider may well be the easiest way to address poor habits that have built up within the firm.
"Real-time up-to-date ledger postings and daily bank reconciliations mean I can trust the management information data in my system and run my firm more effectively"
Toni Wensley, partner, Amphlett Lissimore
IT and processes
The right technology, and the right work processes using that technology, are fundamental.
Your processes should be designed to enable effective and secure cashiering, along with a clear audit trail for your accountant and for any regulatory inspection. The data from your accounts team should also give you the key, up-to-date, accurate management information you need to run your business.
Consider what you want your practice management system to do. Most firms will choose their system primarily for its case management and document management capabilities. The accounts element of your chosen system must also deal with record-keeping from a compliance and management information perspective.
More sophisticated systems can help automate and improve compliance. For example, ensuring that disbursements are dealt with properly, and checking that surplus client balances are returned promptly. Some systems allow for electronic communication rather than email, between fee-earners and their accounts team. Aside from efficiency improvements, this brings significant security benefits too.
Once you have a system you are happy with, your in-house cashiers or your outsourced cashiering resource should be able to assist with creating the best possible process for your firm to operate.
Will you run your practice management system – and store sensitive financial data – in-house, in ‘the cloud’, or using a supplier’s system? How will the cashiering service be integrated with your practice management system? If you are outsourcing, ensure that the outsourced provider has true expertise on your chosen practice management system, and a track record of supporting it for other clients.
You need to think carefully about your processes, particularly in sensitive areas such as making payments. For example, a typical outsourcing arrangement might see the provider preparing payment details, but leaving final authorisation in the hands of the firm.
Build in quality checks and measures. The aim should be not just to ensure quality of service, but to deliver continuous improvement in the way your cashiering function operates.
Recruiting a cashier
If you run an in-house cashiering service – or a hybrid system, using both in-house and outsourced provision – successful recruitment relies on knowing what skills, experience and qualifications you need.
The majority of recruitment is done through agencies advertising online. Platforms like Indeed are often used, particularly for junior roles. A few agencies specialise in recruiting law firm finance and compliance staff.
As roles can be difficult to fill, you should be prepared to offer a competitive salary and benefits. Flexible work patterns can also be attractive to candidates, particularly those with more experience.
A typical recruitment ad might specify:
- how many years’ experience are required (and whether these must be within the legal sector or wider professional services)
- level of seniority and specific duties involved in the role
- IT skills (eg computer literacy) and whether experience with particular software packages is required
- particular knowledge (eg understanding of Solicitors Accounts Rules, VAT)
- teamworking, communication, organisation and attention to detail tend to be key
Although you can require qualifications, this may unnecessarily shrink the pool of potential candidates. Many legal cashiers have no specific formal qualifications related to the role, having built up experience working within law firm administration. That said, financial management qualifications or membership of the Institute of Legal Finance & Management can provide reassurance, particularly for more senior roles.
A structured recruitment process that checks candidates’ claims – and tests their abilities – is more likely to be successful than relying on the general impression created at interview.
"I wouldn't have known how to assess and be certain about a cashier's competence, compliance knowledge or trustworthiness in a recruitment process. Outsourcing solved all these issues for me"
Gareth Jones, practice manager, Easthams Solicitors
Choosing a provider
Be clear about what exactly you are looking for. Do you want to continue using your existing accounting methods or to completely outsource record-keeping? To what extent are you looking to outsource credit control?
Are there any related accounting services you plan to outsource, such as payroll or management accounting? If so, you’ll need to think about how these different functions interact. If possible, the simplest approach may be to outsource as much as possible to a single provider.
Are there any particular constraints that a provider must be able to work within? For example, do they need to be able to work with your existing practice management software?
Ask around for recommendations, then draw up a shortlist of potential outsourcing partners.
- Assess their reputation; ask for references from existing clients.
- Check details of any accreditations and staff qualifications.
- Discuss your requirements. Agree services and service levels.
- Satisfy yourself on key issues such as data security and GDPR compliance.
- Identify which individuals will work on your account, and who they will work with in your firm. Discuss how any third-party relationships will work (for example, with your external accountants).
- Check the supplier’s backup plans – for example, when key individuals are absent, and to ensure business continuity in case of IT failure or a security incident. Confirm insurance cover.
- Negotiate the costs involved.
- Agree an appropriate contract. Make sure this includes clear agreement on how the relationship can come to an end (including early termination) and how you will get your data back.
- Agree a timetable and plan for switching over to the new service.
Throughout the contract, work to maintain good communication and relationships. Monitor quality of service and look to continually improve.