Wire transfers are a common method of accepting payment for law firms, but they can be risky for both your firm and your clients. This article outlines the dangers and downsides associated with accepting wire transfers and best practices for avoiding these traps.
Loss of funds: One of the biggest risks of accepting wire transfers is the potential for the client to lose their money in the process of sending the wire. Once a wire transfer is sent, it often cannot be reversed. This means that if the client accidentally sends money to the wrong destination account, they may not be able to recover the funds.
- Exposure of the firm's bank account number: Many firms choose to put wire instructions on their invoices and email them to clients. If your client forwards an invoice to the wrong recipient (or just an unscrupulous contact), the recipient can use the information to take money from your firm.
Fraud: Wire transfers are a popular method of payment for scammers and fraudsters. The FBI has warned that wire transfers are one of the most commonly used methods of payment in scamming schemes. This is because wires are fast, irreversible, and often difficult to trace.
- Trust account violations: Since your firm is not notified when a client sends a wire, a client with access to wire instructions for both your firm's trust and operating accounts can easily send unearned funds to the operating account. You may not know those funds have been misallocated until your next operating account reconciliation.
High fees: Another downside of using a wire transfer is the high fees that are often associated with them. Banks and other financial institutions often charge significant fees for sending and receiving wire transfers. For example, U.S. bank charges $14 to receive a domestic wire for a business and $40 for a business to send a domestic wire. International fees are significantly higher. Said another way, for your client to send money to you, and for you to accept it, there is a combined cost of $54.
- Manual posting. Payments by wire aren't automatically tied to a client, matter or invoice. In addition, some banks may not notify you when your firm receives a wire. This can make posting payments a job that requires manual work and sleuthing.
To protect your firm and your clients from wire fraud, here are a few important steps to take:
Use secure channels: To protect your firm's financial information from being intercepted, always use secure channels to transmit wire instructions. This might include using encrypted email, a secure client portal, or other methods that provide added protection against unauthorized access.
Educate clients: Make sure clients know that any document containing wire instructions is sensitive. Clients should not forward these documents to individuals they do not trust. Clients should also verify suspicious requests to wire money to your firm. If a client's email is compromised, scammers can alter the wiring instructions and resend the invoice to the client. If clients have any questions about the validity of an invoice, they should use known emails or phone numbers to contact your firm.
While wire transfers can be fast, they come with significant risks and downsides. At Gravity Legal, we've built a bank transfer acceptance system that helps law firms and their clients avoid the risks associated with accepting wires. Book some time with our team at the button below to learn how Gravity Legal helps law firms:
- Keep their banking information secure
- Prevent wire fraud
- Avoid violations of the rules of professional conduct
- Automate the process of posting payments