Retainers Can Solidify Client Confidence – and Payment

One of the first "wants" for lawyers opening a new firm is to get as many clients as possible on a retainer basis. Retainers set up a fixed-fee-per-time cycle, often monthly, by which client funds deposited in a trust account are drawn on over a year or other designated period. Retainers can be one-time payments to guarantee the future availability of the lawyer or firm, or deposits against future services. With retainers, because the client is not paying by the hour, attorneys are afforded the security of knowing the amount and timing of cash flow into the firm.

The disadvantage is that the client may require more services than the amount of the retainer would cover at the hourly rate. To the extent allowed by market forces and consistent with rules of ethics, that issue can be addressed by increasing the retainer to cover a substantial portion of the initial phase of the work. The goal is to stay ahead of the client by having a sufficient amount in the trust fund to bill against until computation of the final tabulation. Send the client monthly statements on the amount withdrawn so there is no question about what is owed for a final billing.

When choosing to request a retainer, make sure that the engagement letter covers the details of the agreement, as discussed below.

Amount

An explanation regarding the type of account in which the retainer will be deposited is also warranted.

Refundable or nonrefundable

If the retainer is refundable, the agreement must specify when any residual amount will be refunded. If the retainer is nonrefundable, it must be a reasonable amount.

Interest or non-interest bearing

If the account is interest-bearing, make sure the client knows who will collect that interest. IOLTA interest provisions are of particular importance.

Replenishment

If the firm requires replenishment of the retainer or a minimum balance, set forth those terms. If the firm reserves the right to demand replenishment, perhaps an adequate notice period to the client would be preferred to replenishment upon demand.

Application of retainer to fees and/or costs

The engagement agreement should disclose whether the retainer will be applied to fees, costs or both, and also should detail how the billings will reflect depletion of the retainer for such payments.

Timing of retainer application

If the retainer is characterized as a security interest for regular payment of fees and/or costs, the terms should reflect under what circumstances the retainer may be invaded.

Failure to get a retainer from a prospective client should not eliminate your desire to represent the party if you've done due diligence on their willingness and ability to pay, and document both in the initial engagement agreement. Due-diligence investigation is a step that too many lawyers neglect, but can be as simple as requesting a credit report from one of the consumer credit agencies or from a business credit reporter.

For firm and client, building an ongoing relationship is the goal, whether matters are billed with or without a retainer. But the trust that serves as the foundation of that relationship comes from the confidence that the lawyer will be there when needed, which is precisely what a retainer affirms.