A plain-English guide to how client money moves through a law firm: what trust and IOLTA accounts are, the rules that govern them, how reconciliation works, and the mistakes that get firms in trouble.
Trust accounting is how a law firm handles money that belongs to clients, such as retainers and settlement funds. That money is held in a separate client trust account, tracked by client and matter, and kept apart from the firm's operating funds until fees are earned. IOLTA accounts are pooled trust accounts whose interest funds legal aid.
When a client pays a retainer or a settlement arrives, that money is not yet the firm's. It belongs to the client until the firm earns it. Trust accounting is the discipline of holding that money separately, tracking whose it is, and only moving it to the firm once fees are actually earned and billed.
Illustrative flow. Specific trust and IOLTA rules vary by state bar; always follow your jurisdiction's requirements.
| Rule | What it means in practice |
|---|---|
| No commingling | Client funds and firm operating funds are kept in separate bank accounts, never mixed, even briefly. |
| Earn before you move | Money only moves from trust to the firm once the fees are actually earned and billed, not before. |
| Track by client and matter | Every dollar in trust is tied to a specific client ledger, so the firm always knows whose money is whose. |
| Never let a ledger go negative | A client's trust balance can never drop below zero. That would mean spending one client's money on another. |
| Reconcile on a schedule | Three-way reconciliation is performed regularly, commonly monthly, and documented. |
What three-way reconciliation checks. Three numbers must always agree: the trust bank balance, the firm's trust ledger, and the sum of all individual client ledgers. When they do not, something is wrong, and finding it early is the difference between a bookkeeping fix and a bar complaint.
Almost every trust problem traces back to two things: money handled by hand, and reconciliation that happens late or not at all. The specific mistakes tend to repeat: moving funds before they are earned, letting a client ledger go negative, depositing earned fees into trust by accident, or losing track of small balances that sit for years.
Because these errors are procedural, they are also preventable. Firms increasingly move trust-linked workflows into dedicated software that enforces separation, keeps per-client ledgers accurate, and makes reconciliation routine rather than a scramble.
Oddr manages the invoice-to-cash cycle on top of a firm's system of record, and trust-aware workflows are part of that. As invoices are delivered and payments collected, Oddr supports reconciliation and audit-ready records so client funds stay separate and auditable, without replacing the financial platform the firm already runs.
Oddr complements your system of record and does not replace your accounting or trust platform. Follow your jurisdiction's specific trust and IOLTA rules.
See how Oddr brings trust-aware, auditable workflows to the invoice-to-cash cycle, on top of the systems your firm already uses.
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