How to bill and apply a client retainer

A retainer reduces the risk of doing work for a new or slow-paying client, and it signals commitment before the firm schedules people onto the project. It also shortens the gap between doing the work and being paid for it.

The engagement letter should state the amount, which kind of retainer it is, how and when it is applied, and what happens to any unused balance when the engagement ends. Unless agreed otherwise, a client can generally expect an unused advance to be returned.

The client pays a fixed amount at signing. The firm invoices normally each month, and the client pays those invoices in full. The retainer sits untouched until the last invoice, where it is applied as a credit.

Worked example: a $10,000 retainer on a project billed monthly at time and materials.

• Signing: client pays $10,000. Nothing is earned yet.
• Month 1 invoice: $18,000, paid in full.
• Month 2 invoice: $22,000, paid in full.
• Final invoice: $20,000, less the $10,000 retainer applied = $10,000 due.
• Total billed: $18,000 + $22,000 + $20,000 = $60,000. Total collected: $10,000 + $18,000 + $22,000 + $10,000 = $60,000.

The client keeps a set balance on deposit. Each invoice is paid from the balance, and the client tops it back up to the agreed level. This suits ongoing advisory work, on-call services, and clients with a history of late payment.

Worked example: a $5,000 evergreen retainer.

• Opening balance: $5,000.
• Month 1 invoice: $3,200, applied from the retainer. Balance: $5,000 - $3,200 = $1,800.
• Replenishment request: $3,200, restoring the balance to $5,000.
• Month 2 invoice: $6,100, larger than the balance. Apply $5,000; $1,100 is due from the client, and a $5,000 replenishment is requested.

The invoice should show the full value of the work first, then the retainer applied as a separate line, then the amount due. A client reading the invoice should be able to see both what the work cost and how much of their deposit remains.

• Line items for the work, at full value.
• Retainer applied: shown as a negative line with the date of the original payment.
• Retainer balance remaining after this invoice.
• Amount due now.

Until it is applied to an invoice, a retainer is a deposit the firm holds for the client, not revenue. Recording it as revenue on receipt overstates the month it arrived and understates the months the work is done. Ask your accountant how your firm should record client deposits and whether any state rules apply to holding them.

Hubity previews each month's invoices from approved time, expenses, retainers, and contract progress, then drafts them for a person to review and send.

See how it works