Evergreen retainers let law firms maintain a pre-funded account, like $5,000, that gets replenished to the same amount each month instead of billing hourly. This model improves cash flow and cuts collection work, but requires strict trust-account compliance to avoid commingling client funds. New legal bookkeepers should ask about billing processes, set up low-balance alerts, and keep clients informed about replenishment.
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Can you believe it's the end of November? I can't. This week we're going to talk about evergreen retainers. And I think this is something that I remember the first time I heard an evergreen retainer, the term, and I was like, what the heck is that? It's really a way that law firms, I think some of the law firms are starting to move away from the billable hour, which is fantastic. And it's a different way for them to improve their cash flow and really streamline their billing. And it's a great topic for a new legal bookkeeper. So as you step into the waters of learning about legal accounting, it can mean that you're needing to learn about trust accounting and all these different things that come along with working with an attorney as a new bookkeeper. But you're going to find that steady workflows in some of the practice areas don't exist. Case in point, a personal injury attorney. It can be sweeping highs and lows, and it's something you want to really look at. Now, this is not one that you're going to see evergreen retainers on, but I am seeing more of the firms switch over to flat fee billing or even just other ways of billing other than using the hourly rate, which is a lot of time-intensive work. Now, still not the norm. They— most people still do hourly and it's a hard switch. I was one of the main topics at ClioCon that getting them there, which is funny because we had that happen maybe 10 years ago with accounting. And now we're looking at that they're just following behind our footsteps. Yeah. In a different way. So if you need to learn about evergreen retainers, totally different style of retainer. It is a way that an attorney can actually take, we'll just say $5,000. So the retainer's $5,000. And you see this a lot with business attorneys. You'll see that they'll put an agreement together for $5,000 a month, and then the legal work will happen during the month. They'll apply the retainer against the bill. And then the next month, whatever that balance is left behind, say $3,000, you'll get a bill for $2,000 to replenish the amount of time— amount of money that is out of that account to bring you back up to that $5,000 per month. So the firm, the law firm's always holding these funds, but it's a way to replenish the funds so that the attorney doesn't have to chase money at all. It keeps the revenue flowing into the firm. Mm-hmm. And it really is a way to— a better practice way to do the billing, to keep the money coming into the firm, and to really stay on top of it. So you're not chasing and doing billing and chasing collections and all that goes along with it. And a lot of times, a lot of these firms will set up ACH. They'll just sweep the money in. It's an agreement that's done at the forefront of the— really on the relationship between the attorney and the attorney's client. So not all retainers are created equally. You pick the wrong kind and you might be sitting with a cash flow starved firm. So start with the classic, which is upfront retainers. You'll find that sometimes if they're working in a model that includes evergreen retainers, it's something that you really need software to help do that. LeanLaw does a great job with that, with evergreen retainers. It'll do the calculations and and pull up the bill to bring it back to whatever the set amount is, and that's all put into the settings. But you really, if you start to work with these kind of clients that have these different billing type of relationships, you want to work with these clients and see what they're working with. Ask to see some of the contracts that they have with their clients so you have a complete understanding of what's involved in the billing process. Good questions to ask in the interview are, how do you do your billing? When do you do your billing? Mm-hmm. Obviously, if everybody did billing on the 10th, it's not possible if you have 25 clients to do the billing on the 10th unless you have a very large staff. So you want to make sure that you're going to be able to stay on top of that for your client. And then you want to segregate the firms. You want to make sure that the retainers stay in the retainage account, and you want them to be into the IOLTA bank account separate from all the funds. You don't want to have any commingling going on. You want to make sure you set up the IOLTA trust accounts. Set up that client ledger so you can see all the funds in there that are there, you can track them. And then if they do have the evergreen scenario, it's really perfect for law firms because the clients are front-loading the funds and then they draw on them as they're earned and then they're replenished. It's really a wonderful recyclable process. Maybe they have a $5,000 buffer because they have a 50-hour case and they do the little bits of time during the month and they bill it. It's really a process that It's easy to do, but it's also a way to track. So if something happens and that payment doesn't go through, you're able to hop on that right away, stop the work before it happens, and you're not really sitting in a place where you've done work and you don't get compensated, or the law firm doesn't get compensated for it. You want to have low balance alerts if the funds are not there and outweigh the amount of time that's to be billed. So if you have a $5,000 evergreen retainer, but the bill is $7,000, that's a problem because you're going to need to bill back, get the $2,000 back and also the $5,000 to replenish the evergreen retainer. Really important in all of this, besides looking at the contracts for the clients, is to have a really good form of communication with the law firm clients. Make sure they know that there's this amount of money and this amount's been applied and this amount is the balance and this is to replenish the balance. You want to have that nailed down perfectly so that you're able to keep a transparent relationship with the client so they know where their money is. That's really important. Yeah. So know that this can be handled by Clio, it can be handled by LeanLaw, it can be handled by Cosmolex. These are all software that can handle those evergreen retainers. It's important to track. It's a way to free up their cash flow. It's a way to manage the funds and help them stay. And we have to be the ones to stay on top of any trust retainers and any accounts receivable and how that money's being applied. It's really the key to any successful law practice. And as the bookkeeper, you're gonna assist in tracking money and keeping it flowing in and keeping on top of the balances to make sure that money is being replenished on a regular basis. So I hope this is helpful on explaining evergreen retainers. I know they can be a little bit confusing. We have a blog post attached to this if you wanna read the details and read it on your own. But if you're interested to learn more about this, please feel free to follow us in the Facebook group, Accountants Law Lab, and follow our Law Pod podcast too, Accountants Law Pod. We're on all the places you can get podcasts, and we'll see you all next week. Bye now. Bye.
