Accepting credit cards at your firm isn’t as simple as setting up a merchant account for a snow cone hut. Where as many retail stores may have similar accounts, their functions and needs are rather simple and straight forward. The main reservation I hear from law firms is the inherent complexity of a firm’s operations and trust accounts. This is unique when compared to most other businesses.
While accepting credit cards for your IOLTA account can be complex, it’s completely doable and ultimately easy for your accounting staff to use and maintain. All you need to decide is on the right account configuration for your firm and choose the right provider to set it up and manage it for you.
What Makes IOLTA Complex
Interest on Lawyers’ Trust Accounts (IOLTA) is a bank account that directs interest earned from an attorney’s clients’ trust funds to the firm’s respective state’s IOLTA program. These programs use the funds for legal services for clients who can’t afford an attorney on their own or for pro bono work, among other programs. The money deposited to this account isn’t used for worked performed, but is money paid in advance for work that hasn’t been performed.
Given the nature of IOLTA, any money flowing in or out of the account needs to be handled carefully. It also needs to be well-documented and trackable. Failure to comply can result in heavy fines or even disbarment.
When talking to firms about credit card processing, I can understand the desire to reduce liability by not accepting credit cards. The benefits to accepting credit cards are also significant and shouldn’t be ignored.
Accepting credit cards can boost revenue by helping you gain and keep new clients. Your firm will also be up-to-date with other firms that are increasing their use of technology to operate. From an accounting perspective, credit cards can improve cash flow and help reduce late payments—credit cards are easy for clients to pay with and you can set up automatic and recurring payments.
If you’re still looking for a risk management benefit, how about this one? When you accept credit cards, you shift the risk of nonpayment to credit card companies. Clients are more likely to charge their card to pay your invoice, then worry about paying their balance later.
Setting Up IOLTA for Processing Credit Cards
Let’s walk through a couple of IOLTA configurations for credit card processing so you can see how and where IOLTA money can be transferred. Each of these scenarios are used by my real-life clients and the advantage of each depends on your firm’s preference.
- You can deposit money directly to an IOLTA account. However, merchant fees—basic fees that cover the cost of processing a credit card transaction—need to be withdrawn from your operating account. That withdrawal is tracked by your credit card processor and is usually paid for at the end of the month.
- You can deposit money into an operations account, merchant fees are withdrawn from the same bank account, then IOLTA funds are transferred to IOLTA. This transfer needs to be initiated by your firm’s accounting staff. It’s an extra step for your employees—and more accountability—but may be preferred if you’d like more control over the transfer of funds.
- You can set up two separate merchant accounts tied to one login or dashboard. Your firm will have an IOLTA and operations merchant account. If you deposit money to IOLTA, the merchant fees still need to be paid from the operating account. The advantage of having two merchant accounts is better tracking and to limit the number of transfers your team needs to initiate.
Another benefit to accepting credit cards is that you can set up an online payment page. Many firms only use the payment page for invoice payments, not wanting to accept money from a client they haven’t already agreed to work with, but you can use a payment portal for IOLTA, too.
Once you determine which set up works best, you’ll need to find the right provider to configure it for—and give you great rates, of course! The truth is any provider can configure your processing this way. The technology and processing doesn’t really differ between providers. But, you’ll only find a few that understand the needs of a law firm and the nuances of each set up without having to explain it yourself to a person that probably is just hearing about IOLTA.
You should also look at the software offered. Is it easy for you to toggle between accounts? Do you receive the reporting that you need? Basically, look at the provider’s interface and make sure you’re given all of the necessary visibility and information to record the money coming into the business.
Each law firm I’ve set up for processing is relieved to work with someone who understands their business, can anticipate their needs, and can quickly resolve issues. Finding a good processing provider is essential to creating a good set up for credit card processing.
There’s a lot to digest in the article and your main takeaway is this: you can safely accept credits with IOLTA, just make sure you choose the right credit card processing partner.