Over my next few blogs I want to explore methods I’ve seen successful law firms use to maintain a positive cash flow. Since a healthy cash flow means a healthy business, it’s imperative that you find a way to ensure future income. The most common way I’ve seen attorneys secure a reliable future cash flow is by using evergreen retainers. When you have a retainer, your invoices are paid reliably and quickly. To use retainers effectively in your practice you need to understand what they are and how to manage them using CosmoLex law firm management software.
What Is A Retainer?
There are different kinds of retainers but in this case I’m talking about a security retainer: a client pays you a sum of money up front that you can use to pay your fees as you go. Although many law firms use retainers, I’ve seen attorneys make two important mistakes.
The first mistake is that some attorneys don’t understand retainer ownership. The funds belong to the client until such time as the money is earned by the attorney. The funds must be held in a trust account and can be spent on the firm’s expenses only after services are rendered. This is not the same as charging an upfront fee to handle a simple case. You pay client invoices out of the retainer, and only then can you transfer funds to your operating account for your own use.
The second mistake is that attorneys collect retainers up front but don’t follow up later. Over a long case the retainer funds are used up, and the law firm ends up billing the client and hoping the invoices are paid. It is imperative that you stay on top of your retainer balances, and request additional funds from clients before rather than after the retainer runs out to keep the cash flowing into your practice.
Billing And Trust Management Working Together
You can find billing software and you can find trust account software, but it is a mistake to try to use separate products for two functions that are so heavily integrated. You keep retainers in trust accounts so you need trust software to ensure you track all funds and you don’t accidentally intermingle one client’s trust with another client’s payments. Once you generate an invoice, you can pay the invoice from the retainer by transferring funds from your trust account to your operating account.
That last step is why it is so critical to use one software tool that integrates both billing and trust functions. Otherwise you end up entering transactions twice, once in each application, and that greatly increases the chance of making an error. In addition your retainer balances are just as important as your unpaid invoice balance and unbilled service balance, and you shouldn’t have to look in two different places to find these interrelated numbers.
Integrated trust management was a feature of the law firm billing software component of CosmoLex from its first release. I genuinely believe you can’t run an efficient law firm if you aren’t managing your retainers effectively.