What are the benefits of having a retainer?
Requiring a retainer for your clients to get a financial commitment on their end presents a number of advantages, including:
Maintaining cash flow
For law firms, consistent cash flow allows you to plan for covering costs associated with payroll and traditional business expenses such as copiers, leases and equipment. Sending out invoices takes time, but waiting for the payment to arrive can take much, much longer. Even if the terms on an invoice are net-30, there will always be clients who don’t pay in a timely manner.
Requiring a retainer will bring to light any potential concerns for timely payment if the client fails to provide the retainer funds. With regular payments coming in, firms can make regular outgoing payments.
Avoiding collection issues
While clients must still be invoiced and approve funds withdrawn from retainers and their respective trust accounts, these funds help to reduce the amount of time spent on collection issues. Rather than taking on a client who may not have the funds to cover fees, retainers ensure there is a pool of funds to draw from for payment. Additionally, retainers reduce the amount of time spent following up and chasing down clients for payment.
Retainers typically fall into one of three categories:
- Classic retainer
- Security retainer
- Advanced or flat-fee retainer
Under each of these, law firms are required to upload proper handling before disbursing payments. Even while operating under the premise of retainer and trust accounting rules and regulations, these can still be very effective in ensuring payment for work completed.