Commercial property management accounting: what “client deposit accounting” should look like in practice

If you manage commercial property, you’ll already know the uncomfortable truth: the money is rarely the hard bit — trust is. Service charges, insurance floats, rent held on behalf of landlords, tenant deposits, sinking funds… It's all client money in one form or another, and it all needs to be handled in a way that stands up to scrutiny.

That’s what people usually mean by “client deposit accounting” in practice: a clear, defensible system for holding, tracking, spending, and reporting money that isn’t yours.

Do it well and your year-end runs smoothly, queries are quicker to answer, and disputes don’t spiral. Do it badly and you’re stuck firefighting: unreconciled bank accounts, messy ledgers, missing approvals, and the kind of emails that start with “We demand a full breakdown…”

This guide walks you through what good looks like — in plain English, with practical steps you can apply straight away.

What “client deposit accounting” really means (in commercial property)

In commercial property management, “client deposit accounting” is less about one single pot of money, and more about how you treat funds you hold in a fiduciary capacity.

That typically includes:

• Service charge funds collected from occupiers and spent on building services
• Balancing charges and credits (post year-end reconciliation)
• Reserve or sinking funds (where the lease allows) for planned works
• Insurance monies (premiums collected and paid over, plus adjustments)
• Rent held on behalf of landlords (where you collect and remit)
• Tenant deposits (where you hold these, depending on lease terms and structure)
• Other client floats (licence fees, car park income held for a client, etc.)

RICS has been tightening expectations around client money controls for years, including how client money is defined, held, recorded and reconciled.
And for commercial service charges specifically, RICS’ professional standard (2nd edition) is now effective from 31 December 2025, which raises the bar on transparency, reporting and “value for money”.

The point is simple: if it’s not your money, your accounting system needs to prove it — every day, not just at year-end.

The outcomes you’re aiming for (what “good” looks like)

A solid client deposit accounting setup should let you do 5 things confidently:

1. Prove ownership: whose money is this, and what is it for?
2. Prove segregation: it’s not mixed with your trading cash.
3. Prove accuracy: bank balances match ledgers, and ledgers match reports.
4. Prove authority: money only moves with correct approval and support.
5. Prove transparency: you can explain every charge quickly and calmly.

If you can’t do those 5 things, you’re exposed — not just reputationally, but operationally.

Bank accounts: structure first, software second

Before you touch Xero (or any ledger), the foundation is your banking structure.

1) Separate “client money” from “office money”

Client money should never sit in your operating account “temporarily”. Temporary becomes permanent very quickly.

At minimum, you want:

• An office/trading account (your money)
• One or more client accounts (client money)

RICS’ guidance on client money handling makes the principle clear: firms should keep client money separate and maintain controls, including reconciliations and proper records. 

2) Decide the right client account model

In practice, commercial managing agents tend to use one of these models:

• Designated accounts (separate account per property/client)
  Best for clarity, easier to evidence, less “cross-contamination”.
• Pooled client account (one client account, multiple properties tracked in ledgers)
  Can work, but only if your ledgers are immaculate and reconciled frequently.

If you’re managing multiple buildings with very different occupier mixes, designated accounts reduce query time massively. You can answer “what’s in the bank for Building A?” without complex internal allocations.

3) Name the accounts clearly

Your bank account naming should help a third party understand the setup instantly, e.g.:

• “Client Account – [Building Name] – Service Charge”
• “Client Account – [Client Name] – Rent Collection”
• “Client Account – [Building Name] – Reserve Fund”

Clarity here reduces mistakes later — especially when staff change or tasks are delegated.

Ledgers: how you should record client money day to day

This is where most problems start: the bank account exists, but the ledger structure doesn’t reflect reality.

If you’re using Xero, a clean setup is everything. If you want support day-to-day, you’ll usually get the best results when your bookkeeping is structured properly from the start (not “tidied up” later). You can see how we approach that in Xero Bookkeeping Services and Bookkeeping.

The practical structure (what we see working)

A straightforward client-money ledger approach usually includes:

• Separate bank accounts in Xero for each real-world bank account
• A clear chart of accounts for:
  • Service charge income
  • Service charge expenditure categories aligned to the lease / budget headings
  • Reserve fund movements (tracked separately, not muddled into operating spend)
• Tracking categories (or equivalent) by:
  • Building / scheme
  • Cost centre (if needed)

If you’re juggling multiple schemes, tracking categories are often the difference between “manageable” and “chaos”. If you want a practical walkthrough, Xero Projects and Tracking Categories is a useful reference point.

Reconciliations: the non-negotiable routine

Client deposit accounting lives or dies on reconciliation discipline.

What you should reconcile (and how often)

Minimum monthly:

• Bank reconciliation for every client account
• Client ledger reconciliation (do the ledgers add up to the bank?)
• Aged debtor review (service charge arrears distort reality fast)

Better cadence for busy schemes:

• Bank reconciliation weekly
• Debtors review weekly
• Month-end pack within 10 working days

RICS client money handling guidance stresses reconciliations as a core control — because unreconciled accounts are where errors (and worse) hide.

If your reconciliations are slow or messy, it usually points to one of these underlying issues:

• Invoices raised late (so costs hit the wrong period)
• Payments posted without reference (so allocations are guesswork)
• VAT treatment inconsistent (so numbers don’t match expectations)
• Reserve fund spending mixed into “normal” costs
• Unauthorised adjustments used to “make it reconcile”

If you want a real-world list of what tends to go wrong, Common Service Charge Mistakes is basically a greatest hits album of issues we see.

Budgeting + reporting: your “trust pack” for occupiers and owners

Commercial occupiers are increasingly cost-sensitive, and service charge scrutiny has intensified. One reason: the numbers are not small.

For example, one office-sector benchmark cited a median service charge cost of £15.71 per sq ft for the highest tier of properties (by annual budget size).
Even outside prime tiers, service charges can be material enough to trigger formal disputes if reporting is unclear.

What protects you is a consistent reporting pack that shows:

• Opening balance
• Demands raised (income)
• Expenditure (with clear headings)
• Accruals and prepayments (where appropriate)
• Management fee basis (transparent and defensible)
• Closing balance
• Bank balance tie-out

Year-end reporting matters too — not just for compliance, but for keeping relationships stable. If you need a template for what strong year-end disclosure looks like, see Year-End Service Charge Statements.

And if you want to align more closely with current expectations around professional standards, RICS and ARMA Best Practices is a good starting point.

Handling reserve funds and major works without drama

Reserve/sinking funds are where otherwise-good systems get messy.

What “good” looks like:

• Reserve funds are held in a separate bank account (or clearly ringfenced)
• The ledger shows:
  • Opening balance
  • Contributions
  • Interest (if applicable)
  • Spend (linked to approvals and invoices)
  • Closing balance
• Spend is matched to:
  • planned works programme
  • tender documentation
  • contractor invoices and certificates (where relevant)

If you can’t show that chain, you’ll struggle to answer the inevitable question:
“Why did we pay £38,400 and what did we get for it?”

Approvals and audit trail: make it boring (that’s the goal)

The best client deposit accounting systems are boringly consistent.

You want:

• Documented approval thresholds (e.g., <£500 PM approval, £500–£5,000 senior sign-off, >£5,000 client approval)
• Purchase orders or written authorisation for material spend
• Clear supplier onboarding (bank details verified)
• No payments without:
  • invoice
  • evidence of service
  • correct coding
  • approval

When you run this properly, disputes get simpler. You stop arguing opinions, and you start pointing to documentation.

VAT and “option to tax”: don’t let VAT wreck your reporting

VAT is one of the quickest ways to create confusion in commercial property accounting, especially where:

• the landlord has opted to tax
• some costs are standard-rated and others are exempt or outside scope
• insurance and utilities have mixed VAT treatment
• occupiers expect net vs gross reporting

If your VAT position isn’t clear, your service charge statements will be questioned — even if your underlying spend is legitimate.

If you need support on the property VAT side, Property Tax Accountants is the right place to start.

The practical workflow that keeps you compliant and calm

Here’s a workflow that works in real life (not just in theory):

1. Daily
   • Allocate receipts promptly (don’t leave suspense balances)
   • Post supplier invoices weekly (not “at year-end”)
2. Weekly
   • Bank reconcile high-volume client accounts
   • Review aged debtors and chase early
3. Monthly
   • Full reconciliations (bank + ledger tie-out)
   • Variance report vs budget
   • Management report pack issued
4. Quarterly
   • Review budget assumptions (utilities, cleaning, security, maintenance)
   • Review reserve fund movements against planned works
5. Year-end
   • Reconcile and close within agreed timelines
   • Produce disclosure-ready statements with explanations
   • Prepare for independent review/certification where needed

If you’re building a reporting cadence and want something that feels structured but not corporate, you’ll likely find Building Management Reports helpful.

Where specialist support actually saves you money

Most managing agents don’t struggle because they’re careless. They struggle because:

• they’ve inherited messy schemes
• the portfolio has grown faster than the systems
• the person who “knew how it worked” has left
• spreadsheet workflows have hit a ceiling
• client money controls were never properly designed

That’s where specialist support makes a real difference: you reduce time spent untangling, and you reduce the risk of getting it wrong.

If you want a service built specifically around this kind of work, have a look at Commercial Property Management Accounting and Service Charge Accounting.

FAQs

What’s the difference between “client deposit accounting” and normal bookkeeping?

Normal bookkeeping is about recording your business transactions. Client deposit accounting is about proving you’ve handled someone else’s money correctly — including segregation, reconciliation, authority, and reporting. In commercial property management, that usually means service charge funds, rent collected for landlords, reserve funds, and other client floats.

The standards are effectively higher because the stakes are higher: you’re dealing with trust funds and third-party scrutiny. That’s why professional guidance (including RICS client money handling) focuses so heavily on controls, reconciliations, and accurate client ledgers. 

Do I need a separate bank account for every building?

Not always — but it often makes life easier.

A pooled client account can work if you have excellent ledgers, consistent allocation processes, and frequent reconciliations. But as soon as you’ve got multiple schemes with different occupier profiles, different service charge years, and different budgets, separate accounts reduce confusion and query time.

If you’re regularly fielding questions like “how much cash is held for our building right now?”, designated accounts are usually the cleanest answer.

How often should client accounts be reconciled?

At least monthly — and weekly for busy accounts.

The bigger your service charge volume, the faster errors compound. Missed allocations, duplicated payments, miscodings, and timing differences all create noise that turns into disputes. Regular reconciliations keep your ledger aligned to reality and stop small issues becoming big ones.

If you’re regularly “catching up” on reconciliations, it’s usually a sign your workflow needs tightening (or your system needs simplifying).

How do you show reserve funds properly in accounts?

Reserve funds should be treated as their own pot.

That means:

• ringfencing the cash (ideally a separate bank account)
• separating reserve fund transactions in the ledger
• reporting movements clearly: opening balance, contributions, spend, closing balance
• linking spend to planned works approvals and supporting invoices

When reserve fund reporting is vague, it invites suspicion — even when everything is legitimate.

What’s the biggest red flag in a client money setup?

Unreconciled accounts and “mystery balances”.

If your bank doesn’t match your ledgers, or you’ve got suspense accounts that never clear, you’re operating on guesswork. That’s when you start seeing:

• incorrect demands
• incorrect refunds
• inaccurate year-end positions
• disputes that take weeks to resolve

A close second is weak approvals — payments going out without a clear audit trail.

How do I keep occupiers from disputing every line item?

You can’t stop every dispute — but you can make them easier to resolve.

What reduces friction is:

• budgets issued in a clear format
• consistent cost headings
• variance explanations (not just totals)
• timely year-end statements
• supporting documentation available quickly
• transparency on management fees and admin costs

RICS’ commercial service charge professional standards are essentially pushing the industry in this direction: clearer reporting, better comparability, and better accountability.

Is there a “typical” commercial service charge cost I should benchmark against?

It depends heavily on sector, spec, and location — but benchmarks can help you sense-check.

For example, one office-sector benchmark reported a median of £15.71 per sq ft for the largest-budget tier of properties.

That doesn’t mean your building “should” be that figure — it simply shows how quickly service charges become a meaningful cost line for occupiers, which is why reporting quality matters so much.

Want your client money systems to feel simpler (and safer)?

If you’re managing commercial buildings and want your client deposit accounting to be cleaner, more defensible, and easier to run month to month, we can help you tighten the setup and take the stress out of year-end.

Start with a chat via our Contact Us page — and we’ll talk through what you’re managing, what’s currently working, and where a few practical changes could make a big difference.