Avoid These Common Retainer Accounting Mistakes Under Your Retainer Contract
CosmoLex’s built-in trust account management features are a big help to law offices that work on retainer, but there are still some errors you have to be careful to avoid. Attorney trust accounting software works best when used alongside smart account management practices, especially when a retainer contract is in place. Here are a few mistakes to look out for whenever a client puts your firm on retainer.
Taking Money Before It’s Earned Under the Retainer Contract
When a client gives you an advance or retainer, that money is not yours until it’s earned, no matter what the retainer contract says about scope or fees. You can’t simply dump it into your operating account and spend it on the assumption that you will earn it later. You have to keep the funds separate until you earn them, and only then can they be transferred into your operating funds.
Not Taking Money After It’s Earned
Not taking retainer funds can be as bad as taking them too early. Even if you’ve earned the funds, retainers still belong to the client until you formally take possession of them. If you don’t, those funds could be seized by other creditors, which is a failure in your duty to protect those funds. This is one reason it is so important that trust software work with your legal billing program so you can easily take retainers as you earn them under each client’s retainership contract.
Not Returning Unearned Fees When the Retainership Contract Ends
Once a matter is closed, any remaining retainer amounts should be refunded to the client immediately. It’s easy to forget such a detail or put it off if you are busy. Again, it is essential to remember that those funds are not yours, but merely being held by you in the client’s interest. Once the matter is concluded and the retainership contract has run its course, you are obligated to return the money to the client.
Misappropriation Across Clients on Retainer
Very, very few attorneys steal from their clients deliberately, but a surprising number do so by accident. What often happens is attorneys lose sight of the day-to-day operation of the trust account holding the retainer and assume that as long as the account balances each month, then everything is fine. In reality, you can never “borrow” from a client’s retainer funds to pay another client’s fees or pay your own operating expenses, even when both clients are on retainer with your firm. Even if you are paying a client expense, the best practice is to transfer the money from the trust account to your operating account and then pay the expense from the operating account.
Keeping Your Retainer Contract and Trust Accounting Aligned
Trust account management doesn’t have to be complicated when you use the trust fund software included in CosmoLex. The system tracks each client on retainer, supports the terms of every retainer contract, and reduces the risk of the mistakes above. Protect your practice from trust fund mistakes; subscribe to CosmoLex today.
