New Zealand Law Society - Cheques being phased out has implications for lawyers’ trust accounting

Cheques being phased out has implications for lawyers’ trust accounting

The use of cheques by banks is ending this year. Law firms still using cheques should be preparing to change to electronic payments. The Law Society inspectorate has some guidance on substitute payments of cheques relating to trust accounts.

This article is over 3 years old. More recent information on this subject may exist.

There has been a quiet revolution in the last decade or more as electronic banking has largely replaced cheques as the dominant mode of payment in New Zealand. This change is looming to its conclusion as various banks signal they will cease accepting cheques. Various dates across 2021 are understood to be:

28 May

ASB stops issuing all cheque books and bank cheques

31 May

ANZ stops cheques

31 May

MOJ will no longer be processing incoming or outgoing cheques after 31 May 2021

25 June

Westpac stops cheques

30 June

BNZ stops cheques

27 August

ASB stops cheques

The Ministry of Justice has further guidance on methods of payment:

Law firms now rarely issue trust account cheques but should now look to cease these completely as these dates approach. The obvious alternative is making the payment electronically where this is possible.

As noted above, applications that used to be common for cheques, for example probate fees, can now be made by credit card.

There have been instances where making the payment electronically is not possible; for example, this has been commonly found in payments made to Immigration NZ; visa application fees etc.

In such instances firms have been using their credit cards to make the payment and then arranging to recover the amount paid from their client as a disbursement. The Law Society inspectorate is comfortable with these arrangements as long as the recovery is bona fide, is supported by evidence of client authority, and the funds are available for such.

In most instances that authority will be implicit but if not readily apparent, then explicit authority should be secured. Explicit authority could be as simple as an exchange of emails where the client confirms the transaction.

Two scenarios will commonly arise:

  • Where a client has funds in the trust account that would ordinarily have fuelled a cheque, then the expected accounting treatment would be to complete a journal to your Firm’s Interest in Trust ledger (if you operate a FIT ledger) or an electronic payment to the office account reimbursing yourselves for that payment.
  • Where a client does not have funds in the trust account (ie an advance from the practice usually via the FIT ledger would ordinarily have fuelled a cheque) then the credit card payment is a disbursement that needs to be recovered either by way of your debtors’ system (accounts receivable) or if your software permits as a debit balance awaiting when the client does have monies in the trust account. Of course, a practice can only accumulate debit balances to the extent of the available counter-balance in their FIT ledger.

It is planned that the Lawyers Trust Account Guidelines will be re-drafted later this year to reflect the cessation of cheques

The credit card payment is not a trust account transaction, but the transfer of the reimbursement is. As with all disbursements the recovery can only be made at cost ie firms cannot add any additional element or margin. Any charge for the time spent on making payments should be billed as a fee rather than by uplift.

Further detail and guidance on billing clients and recovering disbursements can be found in our practice briefing on Open and Transparent Billing.

Whilst the credit card is not a trust account record, firms are reminded that that they should take great care over the use of that facility and be mindful of the potential for scamming.

CERT NZ is the government agency established to help New Zealand better understand and stay resilient to cyber security threats. CERT guidance in this area is simple:

  • Keep an eye on your bank accounts and credit cards — always check your statements.
  • Ring the bank and query any suspicious payments or withdrawals as soon as you see them.

CERT NZ - Get started guide: cyber security

We would add that physical control of the credit card should be carefully managed, and a log of usage may be considered.

If lawyers have any queries, they are encouraged to discuss these with the inspectorate by emailing