What Should Lawyers Know About Evergreen Retainers?

CosmoLex Team

Evergreen Retainers
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It’s common practice for law firms to require clients to pay an advanced fee deposit or security deposit retainer before commencing legal work for the client. Holding a deposit sum in trust for the client helps law firms know they will get paid when it comes time to bill for the work they’ve done.

While it doesn’t always happen, it’s also common for law firms to do enough legal work for a client that the initial deposit is depleted without the firm realizing—until they have to follow up with the client for money now owed.

The solution to avoid chasing down payments? Enter the evergreen retainer.

Evergreen retainers

An evergreen retainer refers to an agreement where clients must replenish the funds the law firm is holding in trust whenever they fall below a certain amount. This arrangement allows the law firm to avoid a situation where they are left trying to collect on outstanding bills.

This approach offers peace of mind that can go a long way for any lawyer. It also helps preserve positive relationships with clients by sidestepping potentially having to engage in a stressful conversation about past-due notices.

With evergreen retainers, some lawyers prefer to have clients replenish at an amount that will last for three to four months so that they aren’t asking the client to make a deposit every month.[1] However, the appropriate replenishment amount will also depend on your practice area and work for the client.

Whichever approach you take, know that like all matters of legal billing, choosing the right billing and accounting software can help streamline the management of clients’ evergreen retainers.

What to keep in mind for legal billing

Your legal billing platform should simplify your life and support a less stressful billing process.

Trust account management and billing

Whether they have used evergreen retainers before or not, most law firms will use client trust accounts at some point or another. To stay compliant, it’s strongly recommended that they use a legal-specific accounting system with trust accounting safeguards.

This type of software helps lawyers stay compliant and helps prevent the commingling of funds. No lawyer wants to deal with the mess of accidentally paying one client’s balance from another client’s trust account.

However, when your accounting system is separate from your billing software—i.e., when you’re using two separate platforms—then you end up with more work on your plate.

Specifically, if your accounting and billing platforms are separate, then you’ll need to enter information twice—once in each system. Not only does this take up time and add a level of “busy work” that few folks enjoy, but it also opens you to a greater opportunity for error.

Instead, having a single-platform trust accounting and billing tool can save you time, reduce the likelihood of mistakes, and still ensure you have all the benefits of a legal-specific system that keeps you compliant.

Keeping track of client balances

Another important legal billing consideration for any law firm is tracking Work-in-Progress (WIP), or all the work that has been done for a client but hasn’t yet been billed for. Historically, law firms assigned a team member to track WIPs in relation to retainer balances. If the retainer balance got too low, this person was responsible for notifying the rest of the team.

Today, this level of extra work is no longer necessary—and the solution can be found in your legal billing system.

As we mentioned above, it’s always a good idea to use a single-platform accounting and billing system. Eliminating the need for traditional, human-generated WIP reports is part of the reason. Not only can a modern, single-platform system let you see WIPs at a glance, but it can also automatically notify you when retainer balances are getting low and it’s time for clients to replenish.

Instead of finding out the hard way that a client’s balance has been depleted, you can have your billing software prompt you to send a reminder to replenish the retainer—or have the system automatically do it for you. This approach works especially well with an evergreen retainer agreement.

Electronic payments

Today’s clients expect the convenience of electronic payment options. They don’t want to have to take the time to mail a check. Instead, they anticipate being able to deposit money on the spot electronically—the same way they pay for everything else.

Accepting electronic payments makes the billing process less of a hassle for clients—which is a win for law firms, too.

That said, whenever you mix electronic payments and trust accounts, it’s important to keep compliance regulations in mind. Specifically, we strongly recommend using a legal-specific payment merchant.

Before lawyers can withdraw money from a client trust account, it must have been earned and billed for. Anything else violates trust accounting requirements.

Merchants that aren’t legal-specific often aren’t equipped to help lawyers adhere to trust rules. Why? If a client pays for a deposit online with their credit card, the money goes straight to their trust account—then the non-legal-specific merchant withdraws the credit card fee from that same account. Since the credit card fee is the lawyer’s to pay, this is a trust accounting violation.[2]

Fortunately, legal-specific merchants design their systems to account for trust requirements. They can deposit the sum into one account and withdraw the fee from another. (In this case, the lawyer’s operating account). The same holds true for voids, refunds, and chargebacks.

Particularly if a client is replenishing a retainer every few months, they will want the option of paying online. Set both the client and your firm up for success with a legal-specific merchant.

Streamline with good legal tech

Evergreen retainers can go a long way toward creating peace of mind for your law firm. They help keep lawyers out of messy situations where they suddenly have to get a client to pay for work that’s already been completed.

However, as with all overlaps in legal billing and trust account management, good tech can streamline the process. Look for a system that offers single-platform billing and trust accounting—and don’t forget to keep yourself compliant with a legal-specific credit card merchant.


References

1. When Choosing a Retainer Option, 4 Types Stand Out
2. How Are You Incorrectly Using Your IOLTA Account (Part II)?

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