Why third-party funds are not company assets
In many Swiss SMEs, amounts pass through that do not belong to the business: tenant security deposits, customer advance payments, commissions payable to third parties, wages withheld pending delivery, escrow amounts for real estate transactions or fiduciary mandates. These are third-party funds (Fremdgelder): money received in the capacity of depositary, agent, or intermediary, with an obligation to return it or use it exclusively on behalf of the owner.
Confusing third-party funds with the company's own liquidity is one of the most risky accounting errors. In the event of a tax audit, a client dispute, or insolvency proceedings, the business may need to prove that those amounts are not part of its assets. Correct accounting and the use of segregated bank accounts are the essential tools for ensuring transparency and asset separation.
This guide explains how to identify third-party funds, record them in accordance with Swiss accounting rules (CO and Swiss GAAP FER), meet sector-specific obligations, and organise internal processes in a compliant manner — with concrete examples for SMEs.
Equity, third-party funds, and restricted accounts: the differences
Before opening new accounting or bank accounts, it is essential to classify each cash flow correctly:
| Category | Ownership | Accounting treatment | Typical SME example |
|---|---|---|---|
| Equity | Of the company / owner | Own asset or liability; affects capital, reserves, and profit or loss | Sales receipts, operating bank balances, paid-in capital |
| Third-party funds | Of the client, landlord, or beneficiary | Liability with offsetting asset; does not affect net assets or the income statement | Security deposits, advance payments on behalf of clients, commissions to be allocated |
| Restricted / segregated accounts | Separate custody instrument | Dedicated bank account, linked to third-party fund accounting entries | «Tenant deposits» account, escrow account for property sales |
| Operating liabilities | Obligation to third parties, but company assets | Own liability (suppliers, VAT, wages, loans) | Supplier invoices payable, VAT due, bank loan |
The decisive criterion is not the origin of the money, but the legal relationship: if the business is obliged to return the amount or use it only according to the owner's instructions, it constitutes third-party funds and not own revenue or receivables.
Legal basis in Switzerland
Code of Obligations (CO)
Deposit (Art. 472 et seq. CO) and agency (Art. 394 et seq. and 401 CO) require the depositary or agent to safeguard and return amounts received. In the event of bankruptcy, identifiable and segregated third-party funds may, under certain conditions, be excluded from the bankruptcy estate or reclaimed by the owner (Art. 401 para. 2 CO for agency; Art. 472 et seq. CO for deposit), provided they are actually distinguishable from the company's own assets.
The accounting provisions of Art. 957 et seq. CO require companies limited by shares to maintain accounts that faithfully reflect the financial position — including the distinction between equity and third-party funds.
Swiss GAAP FER and sector-specific rules
Under the FER Framework, third-party funds must be recorded in separate accounts and presented distinctly in the balance sheet, generally as dedicated liabilities with an offsetting asset, so that they do not affect net assets.
Regulated sectors — estate agencies and property managers (CO Art. 412 et seq., cantonal rules, and SVIT professional standards), trustees (cantonal laws on fiduciary professions), asset managers (FinSA/FinIA) — impose specific obligations to maintain separate accounts and, in many cases, to deposit funds in dedicated bank accounts. Unregulated SMEs also benefit from these same practices as a standard of due diligence.
Accounting: chart of accounts and entries
Correct accounting requires dedicated accounts in the chart of accounts and mirror entries that do not affect profit or loss:
| Transaction | Debit account | Credit account | Note |
|---|---|---|---|
| Receipt of security deposit | 1020 Bank — segregated account | 2020 Third-party funds — deposits | No revenue; balance sheet unchanged |
| Return to owner | 2020 Third-party funds — deposits | 1020 Bank — segregated account | Close position for client/deposit |
| Offset against own receivable | 2020 Third-party funds | 1100 Receivables from clients | Only with written consent of the owner |
| Management fee | 1020 Operating bank account | 3400 Service revenue | Own amount, separate from third-party funds |
Principles to follow
- •Traceability by owner: each deposit must be linked to a reference (contract, lease, mandate) and an individual balance.
- •Zero effect on profit or loss: movements between third-party fund accounts do not generate revenue or expenses, except for an explicitly agreed fee.
- •Periodic reconciliation: the segregated bank account balance must match the «Third-party funds» accounting balance at every month-end close.
- •Documentation: retain mandates, payment receipts, payment instructions, and return acknowledgements for at least ten years (Art. 958f CO).
Segregated bank accounts: when they are mandatory and how to set them up
A segregated account is a bank account opened exclusively for the custody of third-party funds, separate from the company's operating current account. Bank segregation strengthens asset separation: if the business faces financial difficulties, deposited amounts remain more easily identifiable and recoverable by the owners.
The obligation to maintain a separate or restricted account is explicit in several sectors (e.g. rental security deposits under Art. 257e CO in an account held in the tenant's name, advance payments on property sales at estate agencies, trustees under cantonal rules or FinSA/FinIA). For other SMEs, the obligation derives from the fiduciary or contractual relationship, not from a specific law — but best practice still requires separation when managing significant or recurring amounts on behalf of third parties.
How to open a segregated account
- 1.Contact the bank and state the fiduciary purpose of the account.
- 2.Define a clear account name (e.g. «Client deposits account — [Company name]»).
- 3.Configure restrictive signing authority: no withdrawals for operating expenses.
- 4.Link the account to the chart of accounts with a dedicated code (e.g. 1020).
- 5.Automate bank-to-accounting reconciliation in your management software.
Mistakes to avoid
- ✕Using third-party funds to cover operating expenses or own VAT.
- ✕Keeping deposits and operating liquidity in the same bank account.
- ✕Recording deposits as deferred revenue without an offsetting liability.
- ✕Unilaterally offsetting deposits against receivables from the owner.
- ✕Omitting third-party funds from the balance sheet or fiduciary statement.
Typical cases in Swiss SMEs
Even a business that does not operate in the fiduciary sector may handle third-party funds. Here are the most common scenarios:
Property manager and rental administration
Rental security deposits must be deposited under Art. 257e CO in a restricted account held in the tenant's name, not in the property manager's operating account. Advance payments for condominium or management expenses, if collected on behalf of owners or co-owners, remain third-party funds and must be tracked separately; cantons may issue supplementary provisions to Art. 257e CO.
Estate agency and brokerage
Booking deposits, purchase deposits, and amounts withheld pending completion of sale fall within third-party funds. Cantonal rules on fiduciary professions, SVIT professional standards, and contractual obligations require professional agencies to maintain separate client funds and provide periodic reporting. Accrued commission must be invoiced separately, only when the right to remuneration arises (CO Art. 413).
Commercial intermediary and dropshipping
When a customer pays an advance intended for payment to an external supplier, the amount is not revenue until the service is completed. If the business acts as agent with an obligation to return funds in the event of non-delivery, the deposit must be classified as third-party funds and not as an advance on sales.
Professional firm and custody of documents/valuables
Lawyers, notaries, and consultants who receive amounts on behalf of clients (e.g. advances for legal expenses, transaction amounts) must distinguish between funds intended for disbursements and their own fees. Amounts destined for third parties remain fiduciary deposits until actually used.
Association, foundation, or events
An SME that manages the treasury of a sports association, committee, or event on behalf of third parties holds funds that do not belong to it. Even in the absence of a formal legal obligation, accounting and bank separation protects all parties and simplifies the final statement of account.
Asset separation and insolvency risk
Asset separation protects fund owners if the depositary business enters bankruptcy or enforcement proceedings. Under Swiss case law and the CO (Art. 401 para. 2 for agency, Art. 472 et seq. for deposit), identifiable and segregated third-party funds may, under certain conditions, be excluded from the bankruptcy estate or reclaimed directly by the rightful owners — subject to judicial dispute over ownership.
However, if funds have been commingled with operating liquidity, if separate accounting records do not exist, or if the business has used those funds for its own needs, the owner becomes an unsecured creditor — with all the consequences of a weak position in composition or bankruptcy proceedings.
Recommended protective measures
- →Dedicated bank account, with no automatic operating debits
- →Written contract defining the fiduciary relationship
- →Periodic account statement for each owner
- →Annual statement of third-party funds (if required)
- →Internal or external review of segregated balances
- →Contractual clause prohibiting unilateral offset
Tax and audit implications
Third-party funds do not constitute revenue and are not taxable until they become the company's own remuneration. Classification errors — for example, recording deposits as revenue — can artificially inflate turnover and taxable profit, with the risk of adjustment by the Federal Tax Administration or the cantonal authority.
In the annual balance sheet, third-party funds must be presented so that an auditor or creditor can immediately distinguish the company's true net assets. For companies subject to ordinary or limited audit, the auditor will verify that segregated account balances match the accounting records and that there are no hidden transfers to operating accounts.
Regarding VAT, the management fee on third-party funds is generally a taxable service, whereas the mere transit of funds on behalf of third parties does not create a VAT taxable base. The distinction must be documented in invoices and agency contracts.
SME compliance checklist
| Area | Check | Frequency |
|---|---|---|
| Classification | Is every cash inflow classified as equity or third-party funds? | At every entry |
| Chart of accounts | Are there dedicated accounts (asset and liability) for each type of deposit? | Annual / on creation |
| Bank | Does the segregated account balance match the accounting balance? | Monthly |
| Traceability | Does each deposit have an owner reference, contract, and due date? | Ongoing |
| Documentation | Are mandates, receipts, and instructions filed and retrievable? | Ongoing |
| Balance sheet | Are third-party funds presented separately from net assets? | Annual |
| Training | Does administrative staff know the rules on third-party funds? | On hiring + annual |
Managing third-party funds with Accountex
Managing third-party funds with generic tools — spreadsheets or bank accounts not linked to accounting — increases the risk of errors and makes reconciliation difficult. Accounting software designed for Swiss SMEs allows you to configure dedicated accounts, link segregated bank accounts, track every movement by owner, and generate statements and balance sheets that correctly reflect asset separation.
With Accountex, you can set up a chart of accounts with specific entries for security deposits, customer advance payments, and fiduciary mandates, automate bank reconciliation for the segregated account, and obtain a balance sheet that clearly distinguishes equity and third-party funds — making audits, tax compliance, and protection of your clients easier.