The deceit of the receipt
By Matthew Literovich
Law is a field that is deeply steeped in tradition. Despite years of legal changes, technological changes and even cultural changes, one of the more common answers to why lawyers do things is some combination of “that’s how I was taught to do it” or “that’s how it’s always been done.” A lot of the time, that makes a lot of sense. Knowledge is passed on from practitioner to practitioner with some refinement, but not a lot of brand new thinking. Clients don’t want to pay for creativity (except maybe in tax planning); they want straightforward answers at a reasonable cost.
While I am no towering intellect in this field, I do periodically emerge from this haze of tradition and collective wisdom and ask myself the question: “Wait, but why?” Usually this is with regard to some small item in a file that doesn’t warrant further examination at the time, but bugs me after the file is over. Today, that item bugging me is the transaction closing payment receipt.
So what is the purpose of a transaction closing payment receipt? At its best and simplest, it’s a one page document (usually, in fact, a two or three line document), where the recipient of funds from a transaction will sign some sort of acknowledgement that the funds have been received. Long ago, that meant that the parties would send signed documents to each other on one day, then after the documents were received, the other party would send funds on another day, and then, once the funds were received and closing had occurred, the receiving party would send a receipt acknowledging receipt of funds. That concluded the transaction. Makes sense, right?
Except… that’s not how modern closings function. Today, with the advent of electronic signatures, electronic closing records, electronic wires and electronic just about everything else, we do all of this at once. Everyone finalizes all of the documents electronically, we circulate everything for signature electronically, the buyer sends the funds to seller’s counsel electronically, and when all the signatures are gathered and all of the money is in trust, we send out emails confirming the transaction is closed, release the funds and all signatures, and finally, we generate a closing record.
And yet, the receipt persists. The document that was once to be signed upon actual receipt of the funds is now sometimes signed along with the entire closing package before funds have even been received. The receipt is simply held in escrow, and then released with an email “you may release the receipt, funds have been received”. Realistically, the email could just as easily have been taken as evidence of receipt of the funds because in this day and age, we don’t close until the funds are where they are supposed to be. However, if you insist to opposing counsel that you will only sign the receipt once your client has the funds in hand, you’re creating extra work and fees because that would require a separate signing package. Or, if you suggest that you do away with the receipt altogether and rely on the closing email confirmation, the response that you get is “but we always get a receipt.” While it’s not the prettiest document, treating the email confirmation of the receipt of funds would be a far more sensible receipt and save some of the weirdness involved currently where our technology has outpaced our practice standard.
That’s not to say there isn’t a value to receipts. Sometimes the transaction involves complex movement of funds between entities. Sometimes funds need to have been conclusively shown to have at certain places by certain times in order to get a desired outcome (I feel like it’s usually a tax outcome, but I am not a tax expert). For most run of the mill investment or sale transactions, however, the receipt’s value has diminished to nearly zero, and yet we continue to cut down trees, spill ink and generally fret over a document that represents a vestigial structure that is no longer necessary based on how the practice of law has evolved.
So, I’m not saying you should never use a receipt, but if you’ve been having clients sign receipts as part of a signature package of documents in advance of closing and before money has even been wired, let alone received, it might be worth stopping for a moment and asking “Wait, but why?” A concise email, filed with the closing record, might be more suitable to your purposes.