It's not what's up front that counts

Published on: 
Published on 10/26/09

How high should a retainer be in order to assure payment of the final bill?

Accepting a retainer from a client means that work is promised in exchange for the fee. Failure or inability to perform the work results in a refund to the client.

It may be best to deposit the retainer in a client's trust account and withdraw when reaching specific events, such as the filing of a complaint or the signing of a settlement or merger agreement.

Some lawyers split a retainer payment, making part of it a non-refundable retainer and placing the balance in the trust, subject to withdrawal as the work is performed. This makes a clear distinction between the two elements: one non-refundable and one to be paid only when earned or work is performed. Again, with the latter, specify the event or date that serves as the trigger for allowing withdrawal.

But what if the work is performed and the rest of the fee is never paid? Most lawyers get into trouble when they ignore the increasing account receivable, or when they're fooled by the client into thinking payment is forthcoming. Trusting the client who says "I'm good for it" is the surest path to insolvency.

The only way to have any real assurance of payment is a signed engagement agreement that clearly states the terms and responsibilities. Clients who refuse to discuss fees or who will not sign a fee agreement beyond a retainer should be viewed with suspicion.

If the client takes offense at such detailing after offering to pay a retainer, you can respond by saying that your other clients find it acceptable and that it is non-negotiable.

Other ways to guarantee payment, other than requiring the money upfront, include having the client identify a co-signer, such as a friend or family member, who would be responsible for paying or help the client establish a line of credit with your bank upon which you can both agree to draw. You could even secure a lien on the individual's real property (or personal property such as a securities account), provided that your jurisdiction's rules hold such arrangements valid.

But these alternatives may be unnecessary. The most vital way to determine the amount of a retainer is to keep a close watch on your client's account receivable, so that his or her debt to you doesn't rise too much or too fast, and you will be able to request payment and/or withdraw with minimal loss when danger signals arise.

This Coach’s Corner Article is listed under the following categories: