Evergreen Retainer Tips

Welcome to Accountants LawPod, where accounting professionals and law firms converge, hosted by Lynda Artesani, Sarah Prevost, and Steven Libhart.

Well, welcome back, Steve. How are you?

Hi, Sarah. I'm doing good. How are you today?

Doing well. We're going to miss Lynda today, unfortunately.

I know, but we've got our smiley faces here and she'll be back soon, I'm sure.

Oh, did you hear that?

Nope.

Okay. All right.

Oh wait, maybe we heard what we're talking about today. What is it?

What is it? Well, we're talking about evergreen retainers.

Oh, good one.

Yeah, it's one that I think honestly, people end up naturally going into just because of cash flow reasons. But I also feel like it's a great Set up well and set up correctly, it's a great way to help clients, uh, not get behind on your accounts receivable.

Sure, sure. And if you know what, if you're— if you are an accountant, a bookkeeper, or a new attorney out there, this is a great one for you to listen to or watch because we're going to talk about all kinds of different things with evergreen retainers. They're pretty cool. I like them.

Yeah, I do like— I like them if they're done well.

Um, right, if they're maintained.

Yeah, well, and, and, and not to create confusion, depending on the platforms you use, how they're presented on a balance statement.

Right.

So, but I do know that there are clauses that are needed for evergreen retainers and a lot of changes. I feel like, Steve, every time we talk about some of the billing nuances or the etiquette or protocol that needs to happen to help a firm do a better job at their cash flow, And help clients not feel so far behind. It all centers around the engagement letter for the client.

There are 2 things. The root of evergreen retainers are the requirements from the Bar Association. You know, what does your contract have to look like? And then communicating to the clients with the bills and staying on schedule with them. And also, I like to advise people to look for, in the early stages, of evergreen retainers when you are working on a case to get as many of the reimbursable costs in there as you can early on so that you can recoup that in your cash flow, especially if it's a large case.

That's a good point.

And, and you can kind of offset that with that initial evergreen retainer. Plus, it creates that excitement with the client when they see all that action going on on their Oh, you filed this for me. You did that for me. You did this. You did that. You know, you kind of get some of that stuff out of the way as you can.

Mm-hmm. Mm-hmm.

I hope I'm not looking too tiny today. I reset something in my computer.

I'm feeling funny myself. I'm like, oh, I know.

I saw your screen change.

Like, kind of, you know what?

We can, we can just have you and the pinhead today.

Um, so one thing about the systems, as you brought up, is when you're creating those Or if you have an evergreen system and you want to ensure that you're monitoring it, things I've seen in the past where clients have maybe paid their accounts receivable but not their retainer, uh, to pay into a retainer account, um, so they haven't met that criteria. You have to monitor what's happening so that you don't, as a firm, get ahead on your billing and incur more.

Mm-hmm.

client hours if you don't have the funds per se in the right bucket because the agreement stipulates an evergreen style management. So you have— you want to make sure you have a tracking method. To your point, Steve, is like, if you're gonna do the cost up front as much as you can, you want to make sure you're doing a tracking method, set up these, you know, billing practices, I guess, right, for that. But maybe you could just tell us Overall, evergreen retainers, what are they exactly?

An evergreen retainer is an agreed-upon replenishment. I don't know where the word evergreen ever came from in these, but I like it. But it's a replenishment of the retainer agreement, basically, as the case or as the work moves along. And especially in milestone-type billing where you earn money at certain increments.

Oh yeah.

And if it's a, if it's that type of case, but it's got an evergreen retainer tied to it and you're managing it correctly as the attorney, you have cash flow going on. You know that that's going to happen and that you don't have those worries of losing that cash flow because you're not monitoring when you can take that money. You know it's coming and it keeps you on your toes with your work.

And one thing that You know, when I was kind of looking up some of the, the kind of the history or some of the details, one thing that stood out is it helps guard against misunderstandings.

Sure.

Unpaid bills, because—

I like that.

You're, you're paying into your trust account on an evergreen style. So simplistic way is if you have to always maintain $5,000 in there and a billing comes out for $2,500, They'll pull the funds out, but now your retainer, your escrow account, or your trust liability account with the firm is $2,500, and it needs to stay up at $5,000.

Correct.

So now you need to replenish that trust, to your point. And it— I think that there could go as far as— I'm not sure, as because you've worked more deeply in this segment of, of inside a firm. You would want to figure out a good checks and balance of monitoring how far out we are in hours worked to potential hours billed and where the client's retainer, where their account is as far as how much retainer is in there. So I'm sure there's a balancing moment that happens.

Well, and here's a tip I have for everybody. When I worked in one law firm where I did the docketing for all the cases along with the accounting work, We created a dummy client, if you will, in the docketing software. And that's where we docketed all the replenishment of evergreen retainers monitoring. And so it was just like a little tickler system. And what was really cool was then that kind of fell in line with the docketing for the cases.

Oh.

You know, I could see that some activity was going on and I could ping the attorney and say, I just want to remind you, you've got an evergreen going on here. And there's all this work happening. This is what the balance is. And that docketing system would remind me of that. So that's just a little tips and tricks thing for people doing that.

That's such a good point because I also think about, you know, it's one thing to have it in place, but you're also asking the client to put forth quite a bit of cash. Right. So if you can establish, to your point, a good runway, And you're looking ahead, like you said, Steve, where you see this and you're allowing the attorney some— it allows better communication, right?

Right.

Like, so one example is, uh, that came up for me is if there's like a, you know, like the $20,000 upfront retainer and you need to have a minimum balance of, like we mentioned before, one way to help, I think, clients is Especially on the front end. Not every client is a business that has the liquid cash to do these sorts of things.

Correct.

Is, okay, well, in order for us to get started on the work, depending on the urgency of the file, you know, we need to have X dollar amount. And maybe you set up a set agreement so that their, you know, trust can make up to a certain amount of dollars, say $15,000, $20,000. So if it can meet that goal, and then If work is happening and billables can be seen as you're going, draft bills so you can understand a budget or build in a budget to allow for only so much until the client meets that large dollar amount. There's probably other ways to go about it, but I just think like it has such a good place and it's understood what it is in the trust account. If you can make it easy for clients, if they're not a business a lot of times because businesses seem to have an understanding of this. But if you're an actual, you know, I think about divorce, I think about things that you don't know the end cost, right? I mean, it's expensive.

So, well, there's something I want to caution about that I've seen in the milestone-type billing and evergreen retainers is there's more communication going on with the client with these milestone billings where you're opening up the curtain and you're saying, okay, I've done this and I've done that and I've taken that $2,500, I've moved that out of your trust and taken it as per our agreement. Quite often you'll get more questions from the clients as that goes along that don't occur in regular style billing that happens at the end of everything.

Yeah.

You sometimes can find yourself in a situation where there's a dispute. In that phase of billing, and you may be required to move, you know, $500 of that money back to the trust account while you resolve the dispute. So don't think of it as easy street with evergreen retainers. There's more responsibility in my mind.

Yes, with them.

So that's just one of the little, you know, things that you can trip up on really easy.

Yeah. So as you're getting going, one segment, your segment of like while you're working, which is so true because you have to put it back Right. In a disputed moment. Then from there, it's just the balancing act of making sure you understand where you stand with the case, how many hours the firm has moved forward, and the reconciliations. You really have to be top-notch on these reconciliations because we've seen it. An evergreen request goes out, there isn't enough in there, the bill has been presented which supersedes Oh, there we go. Okay. Yeah. To your point, and now the individual is trying to make sense of it all. So I, I would think that you'd want to have some good ways to ensure if you're using a client portal that the client can see everything that's billed, you know, up to that point. You'd want to make sure that there's some accuracy in, in the way that you present things and make sure it's not confusing because I've seen the confusion. As someone who's had to reproduce a lot of documents, I'm like, well, haven't we presented these 3 or 4 times already? But the client isn't tracking that email from 4 months ago, let's say. So—

So a little more handholding is what you're saying, which is good proactive customer service.

Yeah. To what you just said too, you really— you might get questioned naturally. Yeah. And I know it's hard, I'm sure. Like, if we dream up a fake case, like you've got this ginormous case that's hit you, um, uh, maybe like a slip and fall that happened that you weren't expecting. And there's some— there's the PI portion, and then there's some business liability things that have to go on because you have other things that you need to now handle. You have a multifaceted case happening. You've got a couple retainer things that have got to go on, and there's quite a lot of billing. You know, from one law firm to handle this for you. I, I would imagine you want some clarity on how things are going to get billed, what you see, how you track it as a customer or as an accountant, even to ensure that you've— you're tracking these as separate matter items and things are billed correctly and retainer replenishments are going to the right liabilities. It could get messy fast.

One, if you're working with Outside counsel, mediator. There's all kinds of, you know, those are expensive.

Yeah.

And you'll want to be on top of those people to get their bills into you on time so you can pass them on to the client. And, you know, sometimes, you know, a mediator will estimate it's going to cost $15,000 for this piece of the case, and you've got the evergreen retainer to cover that. But all of a sudden, they either come in at $20,000 or they come in at $10,000. You have that angle to take a look at as well. So, you know, while it takes more work, it's really a fun way to work the case because it keeps you super extra involved in another layer, if you will, of customer service and cash flow. Those are the two. That's how I think of them.

Yeah. Especially if you're doing the billing on behalf of the client. And, and you, you really do, um, Like you said, like, things can get quickly escalate. So if, if the case takes a turn, now you've got more, maybe more fees or expert witness fees that you were not expecting. So I feel like with setting up evergreens, depending on the nature of those evergreens, setting it up to be digestible and obtainable for some folks, it helps mitigate a lot of the questioning that happens on the other side. Because you've made it where they can replenish at a— maybe at a quicker tick. Maybe some people have to do it on a weekly, depending on the engagement, depending on what the wording is for that particular matter.

Right, right.

Yeah, there's a lot out there. Practice management is going to be your key support in this, in ensuring that it can do this correctly without confusion. I would say your merchant account as well, making sure the right links go out. So.

Good point. That, that happens a lot.

Oh yeah. Whether it's Evergreen or not.

Right. Oops, you forgot to send the link. That's why they're not paying.

You've got some great tips in here though, Steve. I'm so glad you brought up those little nuances and workflows because I feel like those are really important to everyone involved in this process.

Thanks. I've worked with a lot of Evergreen type things, and they're fun.

Yeah.

They're fun. And you know what, sometimes I've really enjoyed suggesting them when I was working inside of a firm going, have you ever thought about setting up regular retainer deposits for this particular situation? You know, and you can read the client and see what their sense of urgency is, what their cash situation is like. Nothing wrong with asking those questions, you know. It really, it really helps you dive into the case even quicker and with more intent on behalf of the client because you know what's coming and what's guaranteed.

Well, and you do need to make sure— to what you're saying is you need to make sure that the client is aware what is in their retainer account.

Yes, ma'am.

You need to make sure that you're transparent in that information so it's not a question. It's so easy for us to go in and go add up all of our our money that we paid somebody, but do we understand the intent of all that money? Right.

Right.

Yeah. So yeah. Well, that was good.

You got me all pumped up on evergreens again.

We need some evergreen trees around us right now.

Yeah, there we go. Well, great conversation.

Absolutely.

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Bye-bye.

Thank you.

Bye, everybody. Thank you.