Interior designers – pitfalls of holding client monies!

INTERIOR DESIGNERS – PITFALLS OF HOLDING CLIENT MONIES!

November 23, 2022

Our experience is that many of our Interior Designer clients have, at some point, been provided with additional ‘monies’ on account from a Client for the purpose of buying FF&E on a project. This brings some practical problems for ‘start up’ or inexperienced Interior designers i.e. HOW BEST to handle these monies correctly, and HOW to ensure that the right amount is returned to the Client at the end of the project  !

See our suggestions to our Clients on keeping everything on the ‘straight and narrow’.

Our experience is that many of our Interior Design clients have, at some point, been provided with additional ‘monies’ on account from a Client to buy FF&E on a project.   

This brings some practical problems for ‘start-up’ or inexperienced Interior designers i.e. 

– HOW BEST to handle these monies correctly

– HOW to ensure that the right amount is returned to the Client at the end of the project   

There are also some positive outcomes to having these additional FF&E ‘client monies’ on hand for interior designers:

1. there are handling or management fees that can be charged for managing the purchase of FF&E on behalf of the Client i.e. this is an additional ‘service’ for Clients! 

2. there are already monies available to immediately pay for any invoiced fees i.e. NO bad debts  

However, it is critical (from an accounting perspective) that ALL of the transactions related to the handling (or management) of ‘client monies’ are properly managed in Quickbooks or Xero:

– there needs to be a record of the monies being ‘paid in’ and ‘paid out’ of the bank account for each Client – the monies are in a business bank account so need to be properly recorded!  

– it needs to be clear whether the monies being spent for FF&E in this way are VATable (or not) – see Agent or Principal arrangements   

– there needs to be a record of the ‘unspent’ monies that remain ‘owing’ monies to Clients – which ensures each Client knows how much remains ‘on account’ for them OR that remaining monies can be repaid!  

AVOID THE PITFALLS!  

To avoid the ‘pitfalls’ – our ‘practical’ suggestions for our Interior Designer clients include the following: 

1. putting these monies into a separately denominated ‘Client’ bank account, or separate bank account(s) where more than one Client  

2. move funds into the main business account to ‘pay’ for each FF&E purchase  

3. move funds into the main business account to ‘pay’ for your Design, FF&E handling and other fees etc.  

4. move any further new monies from the client into the specific ‘Client’ bank account 

5. identify the transactions by Client to ensure that an ongoing balance of amounts ‘owing’ to each Client can be maintained        

Some other, mainly practical, suggestions to avoid problems or disputes at a later date with Clients, HMRC (or with us over the accounting) include:  

– AVOID ‘mixing’ general amounts of ‘client monies’ with YOUR business MONIES  

– AVOID making payments from your MONIES & being ‘OUT OF POCKET’ – when you already have monies ‘on account’ for the Client 

– AVOID DISPUTES with clients through a lack of CLARITY on amounts ‘owing’ to them at any point in time 

– AVOID delaying payment of your invoices for your services i.e. ensure you are paid immediately from the monies ‘on account’   

If you are about to manage some ‘client monies’ on behalf of a Client for FF&E purchases, or you already have ‘client monies’ and are struggling to keep up to date with managing this activity – then feel free to contact the SAKURA Team for more assistance and support!    

Contact us on 0207 952 1230 or at damian@sakurabusiness.co.uk