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Best Practice Tips: Law Firm Collections/Retainer Management


Asked and Answered 

By John W. Olmstead, MBA, Ph.D, CMC

Q. I am the managing partner of a nine-attorney general practice firm in the Chicago suburbs. We practice in the areas of estate planning/administration and family law. While our estate planning and uncontested family law work is done on a flat-fee basis, our estate administration and contested family law work is billed by time. We collect initial retainers for these matters, but we fail to ensure that the retainers are replenished. We are having accounts receivable collection problems as a result. I would appreciate your thoughts.

A. This is a common problem that I see in firms doing estate administration and family law. The best way of managing your accounts receivable is to have less in outstanding accounts receivable in the first place. You do this by staying on top of your retainer balances compared to your work in process, and ask the client for additional retainer before the work in process exceeds the retainer balance. In order to stay on top of retainer replenishment, you need to develop what I call a “retainer replenishment report. Assign someone to review the report daily and advise responsible attorneys to contact the client when work in process has hit a certain threshold (percentage of retainer used). Some firms present the report at a weekly attorney meeting and determinations are made regarding additional retainers to request. Other firms assign the responsibility to the firm administrator to automatically bill for the additional retainer. It is also important to ensure that ongoing work is managed in a way that an excessive amount of work is not committed to a matter until the additional retainer replenishment is received.

A retainer replenishment report is not a standard report in many billing systems. You may have to create a custom report in your billing system using a report writer or, in a worst case, drop an accounts receivable report to an Excel file and add in some columns for the other information.

Here are the suggested data fields/columns for such a report:

  • Responsible attorney
  • Client/matter name
  • Retainer balance (typically this would be the balance in the trust account)
  • Unbilled WIP fees
  • Unbilled cost
  • Total unbilled WIP
  • 75% retainer threshold
  • Amount over/under retainer
  • Additional retainer requested
  • Total amount retainer to bill (amount WIP over retainer plus additional retainer requested)

Many family law firms have advised me that after learning the hard way, they are now doing a good job at this and advising me that they have minimal accounts receivable issues.

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John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics and author of The Lawyers Guide to Succession Planning published by the ABA. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.

Posted on Jun 07, 2017 by Sara Anderson | Comments (1)
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I try to set the initial retainer at about two months work. This next part is important: send a bill every month! This tells the client want work is being done and what it is costing. The bill should call for the client to replenish the retainer to bring it back to full strength. By the next month's billing a payment will (hopefully) have been received, and the cycle begins all over again. If a payment has not been received, it is best to resolve the issue before you get beyond the amount on account. There is not really a need to bill exactly monthly, but certainly immediately after a large increment of work and every few weeks.

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