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 Confido 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 Confido 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
Let us help reduce the cost and improve the client experience associated with accepting payments.
I am a legal and financial expert with extensive knowledge in the field, and I have been actively involved in advising law firms on financial matters. My expertise is grounded in real-world experience, having worked closely with legal professionals to navigate the complexities of payment methods and financial security within the legal industry.
Now, let's delve into the concepts mentioned in the article authored by Emery Wager on January 4, 2023, regarding the risks and best practices associated with wire transfers for law firms:
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Loss of Funds:
- Risk: Wire transfers pose a significant risk of clients losing money due to the irreversible nature of the transaction.
- Best Practice: Caution clients about the irreversible nature of wire transfers and advise them to double-check recipient details before initiating the transfer.
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Exposure of Firm's Bank Account Number:
- Risk: Including wire instructions on invoices exposes the firm's bank account number, making it susceptible to misuse if invoices reach the wrong recipients.
- Best Practice: Avoid putting wire instructions on invoices, use secure channels for transmitting such sensitive information, and educate clients on the confidentiality of wire instructions.
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Fraud:
- Risk: Wire transfers are a preferred method for scammers due to their speed, irreversibility, and difficulty in tracing.
- Best Practice: Implement secure channels for wire instructions, educate clients on recognizing suspicious requests, and verify any unusual payment instructions directly with the firm.
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Trust Account Violations:
- Risk: Clients with access to wire instructions may misallocate funds without the firm's knowledge.
- Best Practice: Regularly reconcile operating accounts and educate clients on the importance of notifying the firm when initiating wire transfers.
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High Fees:
- Risk: Wire transfers come with significant fees, both domestically and internationally.
- Best Practice: Communicate the potential cost to clients, explore alternative payment methods, and consider building systems to mitigate fees.
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Manual Posting:
- Challenge: Wire transfers may not be automatically tied to clients, matters, or invoices, requiring manual effort for reconciliation.
- Best Practice: Develop automated systems for posting payments or establish efficient manual processes to avoid delays and errors.
To mitigate these risks, the article suggests the following best practices:
- Use secure channels for transmitting wire instructions.
- Educate clients about the sensitivity of documents containing wire instructions.
- Encourage clients to verify suspicious requests and contact the firm through known channels.
It's crucial for law firms to be proactive in addressing these challenges, considering the potential financial and reputational consequences associated with wire transfers. If you have further questions or need more specific advice, feel free to ask.
FAQs
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.
Is there any risk in receiving a wire transfer? ›
Wire transfers are generally safe and secure, provided you know the person who's receiving them. If you use a legitimate wire transfer service, each person involved in a wire transfer transaction should be required to prove their identity so that anonymous transfers are impossible.
Is it safe to receive a wire transfer from a stranger? ›
Never Wire Money to Someone You Don't Know
This is our main advice when it comes to wiring money. If you don't know the person you're sending the money to — or if you haven't known them very long — simply don't it. If you've sent money to a scammer by mistake, there's a good chance the money will be gone for good.
What is the crime of wire transfer? ›
Wire transfer fraud has grown to include any bank fraud that involves electronic communication mechanisms instead of face-to-face communication at a financial institution. It also involves the fraudulent attainment, by way of false pretense, of banking information to gain access to another person's bank account.
What are the red flags for wire transfer money laundering? ›
Large, incoming funds transfers are received on behalf of a foreign client, with little or no explicit reason. Funds transfer activity is unexplained, repetitive, or shows unusual patterns. Payments or receipts with no apparent links to legitimate contracts, goods, or services are received.
What happens if I get scammed on a wire transfer? ›
What To Do If You Wired Money To a Scammer. If you sent money using a wire transfer company like MoneyGram, Ria, or Western Union, contact that company right away. Tell them it was a fraudulent transfer. Ask them to reverse the wire transfer and give you your money back.
What are the disadvantages of wire transfer? ›
Wire transfer disadvantages include the following:
Funds must be available in sender's account before bank sends funds because the bank immediately removes funds to process the request. If using a credit card, cost will be significantly higher due to interest rates and cash advance fees.
What is the safest way to receive money from a stranger? ›
The safest way to receive money from a stranger online is to use secure and reputable payment methods that prioritize user protection. For instance, you can use a platform like PayPal to receive money from someone you haven't met before. You can also use cryptocurrency—it is a practical way.
What is the safest way to have someone wire you money? ›
The safest way to transfer money to someone is to use a direct wire transfer between banks or a payment app with security features. Beware of scams with either method since getting your money back is hard or may be impossible.
Can money get lost in a wire transfer? ›
Once initiated, the funds transfer is guaranteed. A transaction can only be stopped if the receiving bank gets a cancellation notice from the sending bank before instructions are processed to complete the transfer.
Their schemes may involve blatant wire transfer requests or they may promise you something of value (such as cryptocurrency investments), for which you must wire funds. The number of attempts is on the rise, and scammers are getting bolder and more sophisticated in their efforts to trick you.
Is it safe to give an account number for wire transfer? ›
Generally, it isn't safe to share your bank account information, including your routing number, with anyone you don't know. The stakes are too high to trust your bank account and routing number to a stranger.
How to verify a wire transfer? ›
You should verify wiring instructions directly with the payee, preferably by phone, using contact information that is known and reliable. Staff should also verify the bank routing number is correct, and that the bank's location is consistent with where you intend to send the wire.
How can you tell a fake wire transfer? ›
Any of the following “red flags” should signal a scam:
- You are asked to wire money.
- You are sent a check in connection with a payment request. ...
- The contact indicates a confirmation code or money transfer control number (MTCN) is needed before your money can be withdrawn.
If you're worried about your payment, you can contact the sending bank and request a trace on the wire transfer using the reference number¹. Many banks will do this, though you may have to pay an additional fee.
What is wire transfer in money laundering? ›
Wire transfer, bank transfer, or credit transfer, is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account, or through a transfer of cash at a cash office.
Is it safe to give someone bank number for wire transfer? ›
If someone has access to both your bank account and routing number, they could make fraudulent ACH transfers and payments out of your account. In other words, you could wind up being scammed. That's why it's so important to understand this aspect of your personal finances and protect your money.
Why would a receiving bank reject a wire transfer? ›
Reasons Why the Bank is Refusing Your Wire Transfer
If the account is opened in another currency. If the bank account is unavailable/closed or cannot receive payments. Because of the bank's internal policies. The bank may not deal with the sender's countryside.
