Redwood Analytics

The reality is that the majority of firms have concerns when it comes to their billing and collection practices.  There is a lag in activity and that causes a loss in realization and an opportunity lost for re-investment (Time Value of Money.)  That said this is a series on alternative fee arrangements, so I will rant on the billing and collection practices at another time.  However using alternative arrangements like fixed fees is a prime opportunity to use retainers and help your firm's billing and collection concerns.

I had a managing partner ask me that with all of this talk around alternative arrangements, if his firm were to provide cost predictability to the client shouldn't he expect true revenue predictability in return.  The answer to that is yes.  There is little to no reason, why a responsible attorney shouldn't ask for a retainer when working with alternative arrangements and fixed fees in particular.

There are many advantages to this style of payment.  Within a fixed fee arrangement and with payment already made clients are more likely to reach out to their outside counsels.  Knowing that the hours are not being racked up allows for better lines of communication.  In the same scenario it is also incumbent on the firm's side to make sure this is not abused.  For firms, the advantages are clear.  Profit will go up as the likelihood of collect realization loss is eliminated and the immediate opportunity for re-investment exists.

There are disadvantages too.  If there is not trust between firm and client then what the retainer covers could be called into question.  In addition many clients in a difficult time might not like the idea of paying up front when they have not seen the fruition of the firms' work yet.   So the simple story is when cost predictability is required through alternative arrangements like a fixed fee, and the firm desires positive cash flow with an established client, retainers should be brought into the equation.

Just like any arrangement the firms will need to provide data to support the value the client is getting by the retainer, but that is a small price to pay for cash in hand up front.  Not all lawyers are the best at inventory management and using retainers can mitigate much of the risk that this lack in skill creates.