Retainers, retainer fee or retainer agreement: Financial stability is of ongoing concern for many – especially small business owners, freelancers and entrepreneurs. Read on and learn how using retainers could be the cure for your money worries.
The Magic Of The Retainer Fee
Ever worry how to pay those bills next month, the month after that, and… well, you know where this is going. You might be running a very successful business, and still worry about your finances, long- or short-term: clients are paying late (or, god forbid, not at all), it’s the slow season, or you’re simply too busy to find time to send out those invoices. You can stop worrying. There’s help. First, go get yourself a smart accounting system. It will handle the invoices and chase late payers for you. Second, get financial stability with retainer agreement. Spoiler Alert: Your smart accounting system will know how to handle those.
A retainer fee is a pre-payment or advanced payment, issued before a service (or a sometimes product) has been delivered. Think of it as a deposit, paid in advance toward the full cost of the service provided.
Hiring someone on a retainer agreement means getting a dedicated contractor for the time – or project – you’ve paid them for. On the other hand, getting hired on a retainer makes it easier to account for your time and money. Lawyers, consultants, graphic designers or electricians: Working on a retainer agreement has many benefits for independent contractors, as well as the companies hiring them– but there are some caveats.
Pro and Contra Retainer Agreement
First of all, many a hiring party doesn’t like the prospect of paying upfront. What if the service or goods delivered are not up to the expected standards? What if it doesn’t get delivered at all? It takes a lot of trust to hire someone on a retainer agreement. But, in most cases, it is worth it. Because, for the hired party, it means their time or service has been bought already – and they thus are fully dedicated, and legally bound, to the task. Which, in some cases, can be a big contra: As a contractor hired on a retainer basis, you simply HAVE to deliver. You can’t ditch a task for that better, shinier, life-changing project that might come along – but you wouldn’t do that anyway, would you?
Fixed flat fee vs. hourly retainer
Many contractors swear by working on a fixed retainer instead of an hourly one, because it gives them more flexibility. Say, for example, you get paid to write thee blogposts a month, or designing two landing pages, or taking 10 portraits, no matter how long it takes you: First of all, you know exactly how much you earn from the job each month. Second, if you’re faster than projected, you have more time to spend on other jobs. The opposite is true, though: If it takes you longer that the fixed retainer fee agreed upon, you basically earn less.
Hourly retainers, then, combine the best of two worlds: As an independent contractor, you get paid for the time it really takes to do the work, plus they give you the luxury of getting paid in advance. Sounds like the ideal solution for many of your money worries, doesn’t it?
Securing a retainer agreement is easier than it seems. Just put yourself in your clients’ shoes: What do they need from you to entrust you with an upfront payment? If the client is new, maybe agree on a small sample project on a non-retainer basis, or start with a smaller retainer that will increase with the next project. Offering a small discount on your hourly rate in exchange for a retainer agreement is another way to get there. The key to securing retainer fees is trust –basically, reliably good work is the way to gain it.
How To Handle Retainer Fees in Accounting
Say, you’ve got an hourly rate of $100, and it’s probably going to be a 100 hours project. You agree upon a retainer of $10.000, get the money, and get to work. Easy as a breeze – except for the accounting side of things. How will you handle it in your books if it takes you only 80 hours to complete the task? And what if it’s 125 hours? Using a smart accounting system with an integrated time tracker, like our own sweet MoneyPenny does, makes it easy to handle retainer fees. Simply create a retainer, send it out to the client and get notified once it has been paid.
Now you can get to work – and automatically assign all the hours worked on the project to the retainer. Once the hours worked exceed the retainer agreed upon, you create an invoice and have the balance restored. It’s as simple as that – and you can do that for as many clients as you want. No hassle, no worries, and more time to spend on the things that really matter. Like loving your work. Have fun – and sign up for that smart accounting system today. It’s free.