Dynamic’s unique new Trust to Business Analyzed Transfer analyzes the funds transferred from Trust to Business and gives an instant breakdown of the nature of these funds.
Disbursements refer to refunds – essentially the business account is being refunded for costs incurred on behalf of the client. These funds cover costs and are not available to be spent.
Fees refer to profit – Yes, we can discuss this extensively, but the Fees we transfer refer to our net earnings, which can be applied to business expenses that do not affect clients: rent, salaries, stationery etc. Fees indicate the financial health of the business.
Why is this important?
Trust to Business Transfers can be extensive and cover many files with transactions broken down over a the entire life time of the account in our books. Understanding the composition of the transfer amount gives immediate insight into (a) which portion is begin refunded and (b) which portion is available to pay expenses. Only the fee portion of a transfer is available to cover expenses. The Disbursement portion is being refunded to the business account, those funds cannot be allocated a second time.
We cannot use refunded Disbursement money to pay expenses. We can only use money from Fees to pay expenses.
Why do you need this now?
The immediate breakdown of cash flow into fees (free cash) and disbursements (refunds) provides insight into the cash stream entering the business and an indicator of financial health.
Introducing Dynamic’s Trust to Business Analyzed Transfer
It works like
before, only better.
Balancing the
trust by quickly, accurately and responsibly transferring funds between the
client’s trust and business ledgers.
Before…
A manual or
one-to-one transfer would typical require a single payment from the trust
account to the business account. Each transactions required a trust payment and
a business receipt. For few accounts, and large sums, this allowed a very high
level of control, but creates unnecessary risks concerning accuracy and
duplication. Further it leads to higher than necessary bank charges.
Other
Systems
Custom
attorneys accounting solutions provide for various degrees of semi-automated
trust to business transfer mechanisms. Ideally such a system should transfer
funds from trust to cover any business transactions, while preventing trust
debits from occurring and neutralizing business credits. Not all systems
correct for business credits. A single “Transfer from trust” entry was not very
informative, and only automated an otherwise tedious accounting process.
Dynamic’s
Analyzed Transfer
Dynamic’s
transfer system prioritized the trust. This means any trust debit
balances are corrected first. It also scans for and corrects business
credit balances. The magic, however, happens when the system detects fee
transactions on the ledger. Dynamic analyzes the transfer amount and identifies
the fees and disbursements. This distinction is noted on the individual ledger
accounts, is available for scrutiny on detailed reports and forms the building
block of a basic cash flow forecast report.
TRANSFER
DISBURSEMENTS from trust
TRANSFER FEES
from trust
The accuracy of
the analyzed transfer makes business cash flow management easy.
The transfer auto-corrects,
once the Transfer button is pressed, it will write up the ledger
and check for corrections. Transfer all the items on screen immediately until
the report shows 0.00 to transfer.
VERIFY TRUST INTEGRITY
Trust integrity is confirmed by comparing the
post-reconciliation cash book balance to the trust ledgers. This is easily done
on the Management Snapshot, this is an extract based on formal reports.
This post deals with the circumstances under which trust funds may be transferred to the business, and the procedure for doing so.
Bulk Trust to Business Transfers
When may Trust Funds by paid out?
Trust funds belong to the client. The lawyer maintains the trust on behalf of his client. Only in very limited circumstances is the disbursement of trust funds authorized. Disbursement here has the wide meaning of paying out money, and it means payment to any party not the client.
Generally,
the client may always receive payment of funds held on his behalf;
third parties, if duly authorized by the client, by receive payment from the trust;
the law firm, as payment for its professional services rendered.
This post does not deal with retainers and the point at which a retainer may become transferable from trust to business.
Where payment is made directly to the client, or a third party, this will be a direct bank transaction, such as an EFT (electronic banking) or a paper cheque. A specific beneficiary for such payment must be apparent and trust payments may not be made to unspecified (“cash“) recipients.
The ledger will merely reflect a trust debit entry.
Trust to Business Transfer
Few Transactions
For a very few law firms, it may be suitable to transfer trust funds as settlement of its bill on a one-to-one basis. In this case a simple trust payment is made, and should then be received on the same account with a business receipt.
In any busy law firm, with many active files and high transaction volumes it would soon become impossible to manage the number of files and keep accurate tabs on the current balances. This one-to-one type transfer is not recommended.
Problems associated with this method include
an increased administrative burden
additional costs (bank charges)
multiple additional transactions
increased reconciliation workload
for no apparent benefit.
Many Transactions
Dynamic is designed for trust accounting. This means that a sophisticated and dedicated trust-to-business-transfer function is available.
The trust-to-business transfer is composed to of two distinct set of transactions, (a) the Ledger entry, showing the movement of funds from trust to the business, and (b) the Banking transactions, which show payment from trust and the receipt in the business account.
The benefits of this method include
reduced administrative burden
lower costs (bank charges)
few individual transactions to track
reduced reconciliation workload
less time spent on administration allows more time for professional activities.
How Trust to Business Transfers should be done
The Bulk Trust to Business Transfer procedure
The discussion below is designed to give a complete and accurate description of the transfer procedure. It is the recommended procedure. This can be done on demand, any time, any day.
Bear in mind that Dynamic is designed to ensure compliance in a legal trust accounting environment. Following the steps outlined below will facilitate compliance. The Bulk Trust to Business Transfer procedure will ensure the integrity of the trust.
The goal throughout is to ensure that the trust cash books are always equal to the trust ledgers.
Required
Recent, accurate trust bank reconciliations.
A business Transfer Control Account, we recommend a generic account such as #99000. If separate control accounts are required for each trust account, #99001 can be used for bank 1, #99002 for bank 2 etc.
Procedure
All current transactions must be up to date.
Confirm most recent Bank Reconciliations. Unprocessed banking transactions, or outstanding transaction may present a problem. Please see elsewhere for details on the bank reconciliation procedure. If either the cash book is not up to date or there is no recent bank reconciliation, do not proceed beyond this point.
Management Snapshot prior. The purpose is to verify the integrity of the system at the start of the process. Check the trust assets and liabilities, make sure it does not report a problem. This document represents the state of the books at the start of the process. If anything is unclear, do not proceed beyond this point. Print this report.
Management SnapshotManagement Snapshot with Trust in balance
Processing > Trust to Business Transfer. This journal entry totals the current business and trust client ledger balances on a by-account basis, then typically debits trust and credits the relevant ledger. This will reduce the trust obligation, which will reduce the trust creditors. This report should be printed, but it can also be found in the diagnostic reports.
Processing Trust Transfer JournalsPrint the trust transfer list
Management Snapshot post. The purpose is to find a summary of the trust funds in excess of the trust creditors. These funds have become available due to the trust to business journal entry. This document is a summary, and a detailed report such as the Trial Balance may be required in some areas. Find the trust surplus on this report. Print this report.
Management Snapshot with Trust Surplus
Banking Transactions. Process this trust surplus amount with a trust payment and a business receipt. Take the funds out of the trust banking account with a Trust Payment. Process this transaction against the Transfer Control Account. Receive this payment in Business, against the same Transfer Control Account. These transaction should show a nil balance on the Transfer Control Account once we are done. Unbalanced control accounts indicate a problem.
Management Snapshot final. The purpose is to confirm that the books balance correctly after all transactions have been processed. Print this report.
Age Analysis. Inspect the Age Analysis for Accounts Receivable at this point to ensure that Management is fully aware of the extent of outstanding Receivable accounts.
Common Questions
Sometimes we make mistakes or the unexpected happens. What happens to the trust then?
How do I recover VAT on my transfer ? No. There is no VAT applicable to the trust to business transfer transactions. VAT is calculated on transactions as they occur. This means when a Fee is processed, Output VAT is calculated and processed in the system. Similarly when a payment on an expense is made, Input VAT is processed. The cash transfer from trust to business is only that, a cash transfer, and no additional VAT should be raised on that amount.
Must we wait for month end to do a transfer? No! Dynamic is fully integrated and immediately up to date. Post all the necessary transactions and do a transfer immediately. There is no reason to wait for month end. Transfers may be done daily.
I did not do a transfer at the end of last month. Can I force transfer on a specific date? Yes. Simply select the date on which you want to process this transaction and a ledger entry will be processed on that date. Do follow the remaining steps in order to avoid creating a double transfer.
The bank reconciliation is a few months behind, or inaccurate. May I proceed with the transfer ? No. The bank reconciliation is a required preceding step. Proceeding without an up to date cash book and a recent, accurate bank reconciliation undermines the entire process.
My system shows a Trust Deficit. What do I do now? The discussion above assumes the normal position where positive cash flow is from the Trust account to the Business account. It may happen, for reasons not explored here, that a Trust Deficit arises: this is a situation where the net Trust Cash Books are worth less than the Ledger requirements. In such a situation Dynamic will clearly indicate the Trust Deficit position and banking transactions must be processed to correct this state of affairs.
Process a Business Cheque and Trust Receipt against the standard Trust Transfer Control account.
Check the Management Snapshot for the Trust Position.
The Trust to Business feature balances the ledgers. Any remaining differences between the cash books and ledger balances will be reflected by the Management Snapshot.
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