What is the difference between a flat fee agreement and a retainer?
When you develop your pricing structure and client payment options for your law firm, you’ll need to evaluate a number of issues. Hourly billing, contingency fees, alternative fee structures, and more. However, questions often arise over one topic in particular: the differences between flat fee agreements and a retainer.
For firms using a flat fee arrangement (also known as “fixed pricing”), clients pay an agreed-upon amount upfront. This payment covers all the work that is to be performed. Flat fee agreements are common in practice areas like criminal law. The time-intensive requirements of the work can be cost-prohibitive for clients and the ABA Model Rule 1.5(d)(2) prohibits the use of contingency fees for these cases[1].
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The Five Obstacles of Legal Accounting
Download this eBook to learn the five most common legal accounting challenges and how to avoid making costly mistakes. Topics covered in this resource, include:
- Client Trust Accounting
- Proper Accounting of Case Costs
- Differentiating Income and Revenue
- Data Entry Errors Between Billing and Accounting Systems
- Understanding Where the Money Came From
Conversely, flat fee agreements work well for consistent and predictable legal work. Examples of this might include drafting of wills, uncontested divorces, or mortgage foreclosures[2]. However, there’s never a guarantee that a case will be uncomplicated so law firms should have a thorough intake process to help spot any warning signs that might require another pricing structure for a case.
Retainers, on the other hand, are payments provided to an attorney upfront as a down payment or credit towards later costs. There are different types of retainers that might be used[3]:
- General retainer: Paid to an attorney to secure their availability or for a certain amount of time.
- Security retainers: Deposit or lump sum fee paid in advance into a trust account. Funds are withdrawn from the account every time work is completed.
- Special retainers: Flat fee for a specific case or project. These function as complete, up-front payment in anticipation of legal services to be completed in the future.
Managing retainer payments should be done carefully. Retainers are typically held in client trust accounts, but attorneys need to be very careful about how they are handled. Trust accounts are closely regulated and violating ethical guidelines on funds within the trusts can have severe consequences.
References
1. Retainers
2. When to Use a Retainer Agreement and When to Avoid it
3. The Basics of Client Retainer Management for Lawyers
eBook
The Five Obstacles of Legal Accounting
Download this eBook to learn the five most common legal accounting challenges and how to avoid making costly mistakes. Topics covered in this resource, include:
- Client Trust Accounting
- Proper Accounting of Case Costs
- Differentiating Income and Revenue
- Data Entry Errors Between Billing and Accounting Systems
- Understanding Where the Money Came From