How Many Trust Accounts Do I Need?

How many trust accounts do you need if you are a collection agency?  The short answer is likely more than one.

If you are a regional collection agency, say in the province of Ontario, and you are just starting out, one trust account is all you will need.  It has to be with a proper bank the provincial regulator recognizes, and has to be labelled “Collection and Debt Settlement Services Act Trust Account”, or “CDSSA Trust Account”.  All debtor funds need to go in there within 2 days of receipt, and you have to keep an accounting ledger of those payments received.

Now let’s make this more complicated – many other provinces and territories in Canada require their own in-province trust accounts – British Columbia, Manitoba, Quebec, Nova Scotia and the Yukon.

Requiring in-province trust accounts is not unique to Canada – the United States has similar requirements for in-state trust accounts in some states as well, such as Michigan, Washington or Hawaii, as examples.

Finally, some larger clients may require their own dedicated trust account, naming themselves as a beneficiary – you need to get permission from the provincial or state regulators to do this, but it’s not unheard of.

So how do you handle payments for each of the provinces?  You aren’t going to have six different payment portals on your website, and six different merchant accounts for each of the different provinces or states.  You need a way to reconcile payments in, and payments out, that are specific to that province or state.

This is a question that has come up with regulators in the past – and the answer is an end of day reconciliation where all the funds flow to a specific trust account, and the daily accounting register identifies which payments belong to which trust account, and then at the end of the day a transfer is made to reconcile those payments to the correct bank account.  And if you have to track reversals, bounced cheques, payments to client, and the like, you can adjust your transfers again on a daily basis to reconcile everything neatly.

Then, on a monthly basis, when you issue your client funds from the various trust accounts, it’s easy to track funds moving to the creditors you represent.

It may seem daunting, but it doesn’t have to be horribly complicated, you just have to flag the client portfolios appropriately with what trust account they belong to – ideally you have also flagged their province or state-specific tax rate for services, whether they are a gross or net remit client, and the frequency of their statements. 

Got questions about how to set up a collection agency trust account?  I’ve been there – with all the challenges of travelling to the state or province needed to set up the account, dealing with the regulators for exceptions or abnormalities, and the adventure of navigating bank bureaucracy.  Feel free to drop me a note if you ever need help or advice.

Thanks kindly,
Blair DeMarco-Wettlaufer
KINGSTON Data & Credit
226-946-1730
blair@receivableaccounts.com