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Retainers and Prepayment for Ongoing Work
A retainer works when the agreement says exactly what the prepayment buys, when it is used up and refilled, and what happens to any balance at the end.
A retainer agreement is a short written contract in which a client pays in advance for ongoing work, either to reserve your time each month or to fund work you bill against as it happens. For a bookkeeper, consultant, designer, coach or property maintenance company, it turns uneven payments into a predictable deposit at the start of each period, as long as the agreement spells out what the money covers, how the balance is tracked and how unused amounts are handled.
General information, not legal/tax/financial advice; talk to a licensed professional about your situation. Lawyers face specific rules: under the American Bar Association's Model Rule 1.15(c), fees paid in advance go into a client trust account and are withdrawn only as they are earned, so check your state's version of that rule before taking any retainer.
The three common types
| Type | How it works | Fits |
|---|---|---|
| Monthly retainer for access | A fixed fee each month reserves a set amount of time or availability | Bookkeeping, marketing support, fractional roles |
| Prepaid balance drawn down | The client deposits [amount]; you bill hours or tasks against it and the client refills it at a set floor | Consulting, design, legal and tax projects |
| Prepaid package | The client pays up front for a defined bundle, such as a set number of visits or deliverables | Coaching, maintenance visits, training |
The agreement checklist to copy
- What the payment covers. Name the services, the hours or deliverables included and the response time the client can expect.
- What it does not cover. List the common requests that are billed separately, with the rate.
- Billing date and method. "Your retainer of [amount] is charged on the [day] of each month by [method]."
- Tracking. State how often the client sees hours used and the remaining balance, for example a monthly statement.
- Unused time. Say whether unused hours roll over, for how long, or expire at the end of the month.
- Refills. For drawn-down balances: "When your balance falls below [amount], we will invoice to bring it back to [amount]."
- Ending the agreement. Give the notice period and say what happens to any prepaid, unearned balance, such as a refund within [number] days.
- Price changes. Give the notice period before a new rate applies.
Wording to copy
"This agreement covers [services] for [amount] per month, billed on the [day]. It includes up to [number] hours; additional work is billed at [rate] after we confirm it with you in writing. Unused hours roll over for one month. Either of us may end this agreement with [number] days' written notice, and any prepaid amount for work not yet done will be refunded within [number] days."
Why it works
Prepayment smooths the gap that sinks many small firms between doing the work and getting paid. A JPMorgan Chase Institute study of 597,000 small businesses found that the median firm held enough cash to cover only 27 days of outflows if its income stopped, and a quarter held fewer than 13 days, so a payment that arrives at the start of the month rather than 30 or more days after the work can be the difference between a calm month and a tight one.
Clear tracking matters as much as the prepayment itself, because a client who can see the balance and the hours used each month rarely disputes the next charge. Ask a tax professional how and when prepaid amounts count as income for your business.
Sources
- American Bar Association. Model Rules of Professional Conduct, Rule 1.15: Safekeeping Property.
- Farrell, D. and Wheat, C. Cash Is King: Flows, Balances, and Buffer Days. JPMorgan Chase Institute, 2016. 597,000 small businesses.
Related reading: How Recurring Revenue Changes What Your Business Is Worth · Service Packages and Bundles Customers Actually Choose · Scope Creep for Coaches and Consultants: Packages With Clear Edges · The Late Payment Fee: Whether to Charge One and How to Word It
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