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Client Retainer Management

The Basics of Client Retainer Management for Lawyers

In the complex world of legal practice, firms often view client retainers as guaranteed payment that can secure positive cash flow for their business. However, in order for client retainers to function successfully, they must be appropriately managed, as the associated operational and compliance implications have the potential to become detrimental to the firm. To most effectively meet the specific needs of a practice, client retainers cannot be treated as “one-size-fits-all”; rather, a firm must carefully consider its particular needs, and evaluate whether or not the available solutions are a suitable match.

To begin, there are three main types of retainers for a law firm to consider:

  • General Retainers, which secure a lawyer’s availability for a matter, or for a particular period of time.
  • Security Retainers, which secures the client’s payments for future services rendered, and the lawyer draws from these funds as work is completed.
  • Flat Fees or Advance Payment Retainers, which function as complete, up-front payment in anticipation of legal services to be completed in the future.

While security retainers are most commonly used, they are also arguably the most complicated to manage. Therefore, when mentioning “retainers” throughout this guide, we will generally be referencing security retainers and their regulations.

What Can Go Wrong?

Losing Track of Client Funds

Because security retainers are considered a client’s property until they are appropriately earned by the firm, these funds are typically held in a trust account. As a result, any funds not used by the matter’s completion must be returned to the client. To prevent commingling and other compliance infractions, it is important for the firm to manage separate account ledgers for each individual client matter. When this is done manually or improperly managed, a firm can quickly lose track of what is being held and for whom, potentially resulting in severe consequences.

Poor Retainer Replenishment Practices

When managed correctly, security retainers minimize the risk of nonpayment by clients. However, if a firm does not closely monitor Work in Progress (WIP) versus the amount of funds available for each matter, it may still find itself needing to solicit additional funds should the retainer deplete prior to the completion of work.

Ambiguous Retainer Agreements

Although not every jurisdiction requires a written retainer agreement, the best practice is to document party expectations in writing from the very beginning. When crafting any type of retainer agreement, clarity is key. In terms of fees, some firms decide to clearly delineate their billing process to offer transparency and prevent confusion. While a certain level of standardization is useful, avoid generic agreements that are vague or unclear.

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What Common Solutions are Firms Using?

Matter-Centric Record-Keeping

Firms commonly use a matter-centric “book” setup, which allows funds to be tracked in a ledger format, to ensure accurate recordkeeping for retainers. This also helps to prevent commingling of funds and improves the organization of records for easy reference.

WIP Reports

Very often, firms designate a team member whose responsibility it is to report on Work in Progress (WIP) versus retainer amounts. As a retainer reaches a predetermined low point, this person should notify the necessary parties so that the attorney can seek replenishment. In smaller firms, lawyers often find themselves managing every step of this process.

Third Party Resources for Fee Agreements

In order to ensure that fee agreements are abiding by rules and guidelines, many lawyers utilize templates available from trusted resources. Creating multiple fee and/or retainer agreements and customizing them for each client can be time-consuming, especially for a smaller law firm. Turning to pre-formatted templates from trusted sources can be a great time saver, however, it’s important to use resources that are specific to the legal industry and a law firm’s practice area. Depending on more generalized resources is a may potentially point attorneys in the wrong direction and leave them vulnerable to ethics violations and harsh penalties.

Areas for Improvement?

Built-in Safeguards

When it comes to managing client funds, the less flexibility allowed, the better. A legal-specific tool with built-in safeguards is recommended, as this will help to facilitate best practices consistently on a firm-wide level. A quality trust accounting program should include safeguards such as stops in place that prevent overspending or accidental withdrawal from the wrong matter or client’s available trust funds.

Automated Tools for Replenishment Reminders

Due to the multiple moving parts that make up the retainer replenishment process, it is essential to keep track of all unbilled items as well as what funds are available to be earned by the attorney. A billing and accounting tool that allows this information to be tracked in an automated fashion and can create an Evergreen Retainer system which automatically alerts users if/when a balance is getting low and sends a notice to the client.

Fee Agreement Templates as a Starting Point

While templates are vital in establishing consistency, as mentioned previously, it’s important to keep in mind the scope, type, and length of work to ensure a fee agreement fits the needs and specificities of the practice and client base. A custom agreement template is a useful starting point for a firm, but it must be reviewed and adjusted accordingly and on a regular basis. Then, it is essential to standardize this custom fee agreement across all clients to prevent ambiguity or mistakes.

How Can CosmoLex Help?

CosmoLex provides a matter-centric system, which means all records are associated with the appropriate matters, making it easier to find information and complete entries for billing and trust transactions. Additionally, because it is a fully integrated system that includes trust accounting, CosmoLex has built-in safeguards to address compliance requirements that apply specifically to law firms.

With an at-a-glance view of all matters, work in progress, and trust balances on a single screen, plus real-time reporting, retainer replenishment is made easier with CosmoLex. This legal-specific solution also addresses Evergreen Retainers, a form of security retainer that promotes retainer replenishment, by requiring a minimum balance in trust for every client. It easily identifies clients that have gone below the agreed upon minimum amount and sends a reminder to replenish with the appropriate funds.

CosmoLex also supports the creation and management of custom document templates, including fee agreements, and can generate these as needed for any matter. This reduces the risk for mistakes and promotes consistency across firms of every size.

Staying compliant by properly managing legal client retainers is an essential factor in a law firm’s success, and there are several proactive steps a firm can take to improve in this area. Adequate retainer management ensures that your firm is complaint and can solidify cashflow for law firms. Improving this area of your firm is essential and can be achieved through matter-centric record keeping, automating administrative and billing tasks, and focusing on the use of legal-specific systems and resources.

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The Basics of Client Retainer Management for Lawyers

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