Invoicing for Retainers
Written By Geoff Burns
“How do you invoice for retainers?” I get this question frequently from conversations with attorneys and prospects. And it is a great question with a caveat.
Refresher time: What is a retainer? It is client funds that an attorney or firm holds on to on behalf of their client. Those funds may be used for client matters as long as they are in compliance with the terms of the engagement. Frequently, these retainers are held in the IOLTA/IOTA accounts. For bookkeeping purposes, the funds are assets in the bank account, but liabilities on the books, as they must be paid back to the client or used on behalf of the client. These funds do not belong to the firm. They are owned by the client.
When it comes to retainers, the requested funds may be required before an attorney begins to work on a matter for a client. The problem is that retainer funds do not belong to the attorney or firm until services are billed. So how can attorneys send a statement showing that retainer funds are owed, if an invoice is for work already performed on behalf of the client?
The short answer is, they can’t. Attorneys are able to request funds and even establish a minimum retainer amount which must be on hand at any given time, but attorneys cannot send an “invoice” for those funds. Attorneys can send retainer request letters and emails, reminding clients of the terms of the engagement. This is one of the most effective ways to obtain retainer funds.
Another way that attorneys can request retainer funds is through software. There are several options on the market which allow attorneys to send an email with a secure link so clients can send retainer funds. There are full package Practice Management software options as well as a la carte solutions. Each of these has its own pros and cons (which I will discuss in another post).
Why does it matter? Well, because having proper cash flow for your practice is needed to have a practice. If your firm doesn’t make money, then you don’t have a practice, you have a hobby. Retainers are a crucial tool for attorneys to ensure proper cash flow to sustain the firm. Using retainers can help firms increase volume of collections and reduce time of collections. It also reduces time and costs spent on collections.
With nearly 75% of all law firms in the USA having only 1-4 attorneys, most firms lack the stature to appropriately follow up on collections, so having retainers before working on client matters is a crucial advantage over firms without.
We always advocate for some sort software solution to solicit and process retainers. Since invoicing is not an option, software is a simple solution that when used properly, can be a highly effective tool for increasing cash flow for the firm and for maintaining healthy client relationships.