Before accepting work from a particular client, it is important for experts to prepare a retainer agreement to set forth how invoicing will be conducted and which kind of retainer to use.
A retainer is any amount a client pays upfront to secure professional services. In many cases, the upfront fee can be very high and is paid as a lump sum.
Another type of retainer used by many experts and attorneys is the “evergreen” retainer, in which a client pays a certain amount in advance and agrees to replenish the money on a regular (usually monthly) basis.
In this case, the client is paying lesser sums more often. The retainer amount is based on whatever the original agreed-upon fee is, which can be adjusted as the scope of work varies.
How an Evergreen Retainer Works (Example):
For example, in January, an expert is hired by a client and charges a $5,000 evergreen retainer. In that month, the expert provides $2,000 worth of services.
The expert’s February invoice credits the client for having paid $3,000 at which point the expert bills the agreed-upon amount to replenish the retainer.
That amount could be more or less than the January retainer depending on how much work the expert anticipates for February. For instance, the expert could bill for anywhere between $1000 and $2000 or more.
Why Use an Evergreen Retainer?
Experts can benefit from using evergreen retainers in many ways. Provided the contract agreement is clear and complete, they will get paid as work is completed.
If expenses are clearly invoiced and communicated to the client, this method removes the guesswork of what the total end costs might be. This way experts will have cash on hand and take less risk in losing money if a client decides to stop paying or decides to terminate the relationship.
Clients who are dissatisfied can easily terminate the relationship by simply not replenishing a retainer; on the other hand, experts will reduce their risk when they discontinue services to clients who haven’t paid the retainer bill on time.
Both parties engage in a predictable process that clearly sets out what services were provided and what specific services cost.
For clients, the bills are broken up into monthly (or whatever frequency is established by the retainer agreement) invoices, which can help make fees more manageable.
Experts can be assured that they receive compensation, and clients know how much money is “at risk” if a dispute arises.
Without an evergreen retainer, there may be confusion or frustration. If clients do not know how much they will owe until the conclusion of a matter, a bill might seem high or overwhelm the responsible party by being due all at once. With an evergreen retainer, the expert is paid in a timely manner, and there is less room for conflicts over remuneration at the end of a relationship.
What to Put in Retainer Agreements:
Experts should have clear written retainer agreements before accepting employment. Such agreements should specify the type of retainer that is agreed to.
In the event that an expert plans to use an evergreen retainer, the fee agreement should state this. Retainer agreements should also explain how the evergreen retainer will function, including what will happen if certain events arise.
In particular, the agreement should spell out how an evergreen retainer functions if a client:
- Overpays and is owed money.
- Does not pay the required amount to maintain the retainer.
In the first instance, clients should be refunded any unused portion of the retainer after the work has been completed.
In the second, the agreement should state the consequences of non-payment.
The evergreen retainer agreement should express that if an expert is not paid the agreed-upon amount at the intervals the parties agreed to, the work will cease.
Evergreen retainers are very common, and many legal service providers require them.
Regardless of the type of retainer contemplated, a retainer agreement that is as specific as possible helps both parties.
Experts and clients can ensure good communication and better relationships by making financial arrangements as unambiguous as possible.
Evergreen retainers offer a way to increase transparency and predictability, which benefits everyone.