Accepting Credit Cards

Having just decided to open a practice, where do you begin?

“I guess I need one of those credit card swipe machines … I think they use a phone line, so I need one of those. Maybe I can use the same line as my fax machine …Wouldn’t it be great to accept credit cards from clients ‘on the go,’ using my phone? Or maybe through my computer?”

Meanwhile, in another part of the brain: “Client funds that I haven’t earned yet belong in an IOLTA. The State Bar people can walk through my doors at any moment and demand to see my books … Can I even charge client retainers to credit cards?”

This article will address these questions.

First, the mechanics. There are five players involved in every single credit card transaction: (1) the attorney, (2) the attorney’s bank, (3) the credit card processing company or merchant services company as they are sometimes called, (4) the client’s bank, and (5) the client. When you decide to accept payment from your clients via credit card, you are the merchant. As a lawyer, you’ve already set up two bank accounts, your business operating account; and your IOLTA. If not, do so immediately before you read any further.

Do you have questions about client trust accounting? The State Bar of California offers guidelines on its website on proper account set-up and maintenance.
Visit to learn more.

Your client, on the other hand, has a bank that agreed to extend a certain amount of credit to her, and thus the bank is ready to give you that money should you ask for it. The way you ask for it is through a merchant services company – the middleman. As with every middleman, this one wants a cut of the transaction. Ensuring these transactions don’t run afoul of the rules governing our profession will be your biggest hurdle.

You have several decisions to make here: (1) which company to use for merchant processing; (2) which credit cards to accept; and (3) whether you will be accepting credit cards only for fees already earned or to fund deposits for advanced fees and advances on costs; in other words, will you be asking the merchant processor to handle money that belongs in your IOLTA or not?

Decision #3 is most crucial because, if your answer is “yes,” you must ensure 100% of the amount you charge to your client’s credit card is deposited straight into your IOLTA, and your business operating account is used to pay any processing fees/charges to the merchant processing company. You do this by telling the merchant processor that you are an attorney and require a dual-account setup whereby all funds are deposited straight into your IOLTA and all fees/charges/ etc. are taken out of your business operating account. Otherwise, you run afoul of rule 4-100 of the Rules of Professional Conduct.

Very few merchant processing companies offer the dual-account setup; “Intuit Payment Solutions” and “Merchant Warehouse” are two companies that will. I use Intuit because they have competitive fees, no contracts, do not require you to buy or lease any equipment, and will even give you the latest version of QuickBooks as an added bonus. I did purchase a card swiper (about $40) that plugs into my computer via USB and is fully integrated with QuickBooks, allowing me to use one piece of software to manage my business finances, bill my clients, conduct credit card transactions, and manage my trust account.

And speaking of fees, you will see everyone advertising rates as low as 1.xx%. Don’t be fooled; you will end up paying much more than that. This has to do with what’s known in the industry as the “Three Tier System.” Transaction fees are based on the interchange rate, the type of credit card that’s being used, and whether the card is swiped or keyed-in at the time of the transaction. banks pay for moving money around; it is a constant for our purposes here. On top of that, the merchant processor will add its own markup which is highly variable and subject to negotiation. “Qualified” rates are charged for swiped cards that are basic, personal credit cards offering no points or cashback incentives to the consumer; these have the lowest transaction fees (which are the ones being advertised.)

You will not find many of these cards being used in the real world. “Mid-Qualified” rates are charged for all keyed-in cards and cards that offer some sort of incentive to the consumer. And, finally, the highest rate is charged on “Non-Qualified” transactions, which are mostly business and government-issued cards. This is an over-simplification of what is in reality a very complex, Byzantine fee structure that is not meant to be understood by anyone.

The bottom line is this: the transaction fees you will pay for accepting credit cards from your clients are NOT the primary reason for choosing one merchant processor over another. Once you figure out which one is willing to set you up on the dual-account system I described above, your next worry is whether they will require you to sign a contract for a specific term, whether you will have to buy or lease any equipment, and whether they have any other fees or charges.

I no longer accept AMEX from my clients. The reason is the same one that makes it a great credit card from the consumer’s perspective: in the event of a disputed transaction, they stand by the consumer 100% without giving you an opportunity to tell your version of the story or to produce a signed receipt.

At least when it comes to attorney merchants, AMEX will not inquire into the validity of the transaction. Instead, they automatically issue a chargeback, leaving you to deal with your client on your own. Meanwhile, you may have already done the work for the client and even paid some filing fees or hired experts. Additionally, they charge a 3.5% rate, which is one of the highest.

What do I do to protect myself in case a client disputes a charge? If the client is in the office and hands me a credit card, I do a “swiped” transaction and print out a Quick- Books receipt which my client signs. Most often, though, my clients are not physically present in the office to hand me the card. In this case I have them complete a One-Time Credit Card Authorization form where they write in the amount they want me to charge, their name, credit card number, billing address, which is signed and dated. Most clients complete the form in their own handwriting, which I retain for my records. (Be advised that you as a merchant are under strict provisions regarding privacy and theft, so be sure to read each credit card company’s merchant requirements for handling of credit cards, to ensure that you are compliant, and that everyone in your office is compliant. If you wish to avoid some of the issues and requirements referenced in this article, you might consider whether a service such as PayPal makes sense for your practice.)

A few clients are on a payment plan where they’ve agreed to allow me to charge their credit card a certain amount of money on a particular date every month. These clients complete a Recurring Credit Card Authorization form with all the same info as with the one-time authorization, plus the recurring term. It specifically references the original fee agreement, since it is essentially a modification of the original terms, and allows the client to write in the day (or days, if they want me to charge their card on two separate occasions every month). Intuit allows me to automate this process via an online account including the transaction receipt which the system e-mails to me and to my client.

The result is fewer things for me to do manually, the clients are billed on a more regular basis, and my accounts receivables remain low.

Finally, everyone is happy. It’s a beautiful world.

Dubrovsky Law is a boutique law firm in San Francisco, California, that offers innovative solutions to complex family law matters. Established by Gary Vadim Dubrovsky as a result of his passion for advocacy, Dubrovsky Law guides individuals through various issues, including divorce, annulment, separation, property division, child custody, visitation, move-aways and alimony/spousal and child support.

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