NFIB

Working on Retainer Can Help Stabilize Cash Flow
12/ 06/ 2002

by Jeffrey Moses

When you have a client who comes to you often, mention that it would be economically advantageous for them to place you on retainer.

The definition of retainer is that you agree to make yourself available for a specific number of hours or days within a certain period, usually biweekly or monthly. The client pays you for all these hours, whether or not you’re supplied with enough work to fill them. This arrangement allows a business to achieve a steady, predictable cash flow.

When discussing a retainer situation with a client, mention these benefits:

1. The client will be able to receive your work at a reduced, pre-determined rate for the number of agreed-up hours. This discount may be 10 percent to 25 percent off your regular rate.

2. You will always be available for the agreed-upon number of hours. This should be very appealing to the client in case rush deadlines arise.

There are specific business considerations that should be discussed when setting up a retainer relationship. These include:

1. Your retainer fee will be paid every two weeks or month, as agreed upon, whether or not the client provides you with enough work to fill up the allotted hours. If you do not work enough to fill the time, you do not owe extra hours during the next retainer period. You don't want to be caught in a situation where you are continually underworked, then expected to put in a tremendous amount of overtime at no extra pay during the following pay period.

2. The retainer period should not be longer than one month. Any longer may disrupt your cash flow. Two-week retainer periods are ideal for many small business owners.

3. When your client has an unusually large, time-consuming job, you should be paid at your normal rate for the overtime--not the reduced rate you offer during the retainer period. Let your client know, however, that if from time to time a little extra work is required, you will provide it at the retainer rate.

4. Expenses for materials, travel, etc., should not be part of the retainer fee. The client should pay these according to your normal arrangement.

5. Ask the client to give you at least a month's notice before ceasing the retainer arrangement. This will give you time to fill in with other work and prevent sudden cash-flow disruption.

A final note: There is nothing wrong with being placed on retainer by more than one client at a time. As long as you have the hours and energy to devote during the stated times, having several retainer relationships will provide greater stability to your cash flow.

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