When it comes to charging clients for their services, lawyers have a few different options available. They can charge clients on the basis of the hourly rate, set flat fees, contingency, or go for the retainer fees option.
But how will you know which fee type is best suitable for you and your clients? Well, for that, you must have a clear understanding of all the legal billing models.
So, to help you decide which fee model for your firm is best suitable. We will be covering one fee type which is retainer fees for lawyers.
What Is A Retainer Fee?
Retainer fees are an upfront or advance payment that a client pays to its lawyers for future legal services. It is a prepayment method and a commitment for both parties to work together. Lawyers calculate these fees by multiplying hourly charges by the number of hours it will take to complete the case. Retainer fees for attorneys work as an advance fee. Lawyers hold the fee in a dedicated account and deduct it after they complete the work. Clients can either make an online payment for the fee or they can opt for a traditional payment method.
The average lawyer retainer fee can be around $2,000. But it will depend on the location, experience, and area of practice. The highest lawyer retainer fee can go up to $100,000.
What Are The Types Of Retainer Fees?
There are two common types of retainer fees, we are going to explore both below:
1. Earned Retainer Fees
Lawyers and firms get an earned retainer fee after they have provided the service to the client. The earned retainer fees for attorneys get transferred to the firm operating account after the lawyer completes the work. That is the reason why it is known as earned retainer fees.
2. Unearned Retainer Fees
On the other hand, unearned retainer fees are the fees that a lawyer holds in the dedicated retainer account. It is a prepayment that lawyers can deduct after the completion of a matter. Until lawyers complete their services, they can’t access this fund. This fund simply acts as an assurance that the client has enough availability of funds to pay for the service. Once their service is completed, they can transfer this fund from trust accounts to their operating account. Lawyers must stay in compliance with trust accounting IOLTA when they are choosing a retainer fee structure.
How Does Retainer Fee Work?
If you are still thinking about how the overall process of retainer fee works. Well, it is quite simple.
After the client has an initial consultation with a lawyer about the case and decides to work with him. He makes an upfront payment that covers the legal fees of the lawyer for the service. As the lawyers or attorney starts working on the case, they will track time and bill against the retainer fee.
Let’s say the hourly rate is $100. The retainer fee might be $ 10,000 if the lawyers estimate the case will take up to 10 hours. If in the first month you work for two hours, your retainer will be reduced by $2000. For the upcoming month, the balance will be $8000. You get the idea of how it works.
It is important to note that the retainer is the amount that is deposited in the trust account of the lawyer. If the lawyer spends less time on the case, he will have to return some amount from the deposit fund. If a lawyer spends more time on the case, the client has to add an amount to the retainer fund.
What Are The Benefits Of Retainers?
There are various advantages of retainer fees some of which are mentioned below:
- Retainer fees work as an assurance to the client that lawyers will offer them the service when required.
- The advanced fee structure lets lawyers and clients have an understanding of the total cost of legal services. This gives the client a heads-up as to how much expenses he may have to incur.
- Clients who opt for retainer fees often get priority service from the lawyer.
- Retainer agreement helps lawyers avoid conflict of interest since the lawyers only represent clients that offer them advance fees.
What Is A Retainer Fee Agreement?
For lawyers, payment is a major pain point. Lawyers and attorneys often suffer from late payments or no-payment situations. In this case, having a proper written document or agreement in place can be very helpful. It is essential to have a retainer agreement to outline all the terms and conditions regarding payment.
Here are some of the elements that your retainer agreement should consist of:
- All the basic information regarding the agreement
- Clearly specify the scope of work in your agreement
- Add the type of retainer fee you are opting for
- Mention the retainer amount for the service
- Your agreement should consist of all the relevant payment terms in it
- Specify the frequency of communication in the agreement
- Termination clause or condition of the agreement
How Should Retainer Fees Be Paid?
There are a few different ways to pay retainer fees. Lawyers and clients can both collectively decide their preference for the retainer fees.
1. Upfront Payment
This is the first and most common method that clients use to make payment for the service they are rendering. In the upfront payment method, the client makes one single payment. The client pays the full amount in a single go.
2. Installment
In this method, the client divides the payment into a few parts. The amount for installment is predefined, and the client pays that amount over a specific period. For instance, it can be monthly, quarterly, every six months, etc. Legal payment processing solutions are perfect softwares that lawyers can use for accepting recurring payments from clients.
The installment methods reduce the burden of making the payment at once. It makes legal services more affordable for clients.
3. Subscription Models
At last, we have a subscription model. In this method, payment is recurring and replenishes at various intervals. This makes access to legal services more convenient. Any individual or business that constantly needs legal service often opts for this subscription method.
The Bottom Line
Retainer fee is beneficial for both lawyers and their clients. But you can also see what alternative fee arrangements work best for you. This fee structure can create a better client experience as clients can choose different methods of making payment. Additionally, they will have the assurance that a lawyer will offer service whenever they need it.
Legal billing software, like CaseFox, can reduce a lot of the administrative side of retainer fees, such as automatic payment reminders or recurring payment plans. Lawyers can track time accurately and generate error-free bills on the basis of that. They can later share those with their clients through email. They can also generate complete reports regarding paid and unpaid invoices to keep track of finances.
Try CaseFox today and see how it can make the process of legal billing efficient for you.