• Finance

The simple system that can keep your cash-flow consistent

Getting paid is one of the biggest legal issues (if not the biggest) for small business owners. And yes, we freelancers are small business owners.

And, either you deal with this issue up front in your contracts, or later when you deliver the work product and your client doesn't pay.

I believe in being proactive. So it’s my goal to avoid disputes over payment up front by including specific provisions in contracts.

And today I’m going to share with you a provision that I include in my agreements with my clients: the Replenishing Retainer.

Get Paid with the Replenishing Retainer

For those of you who don’t know, a retainer is a sum of money that a client pays you in advance. The retainer is either a fixed amount for the contracted work, or your hourly rate is billed against the retainer.

And retainers aren’t just for lawyers. Freelancers can and should use them too.

The Replenishing Retainer works as follows: For hourly rate clients, you include a provision in your contract that the client will pay to you a specific sum of money in advance of beginning work on the project.

For ease of explanation, let’s say that the amount is $500.00. You begin work on the project only after you receive the retainer. Then, as you work, your hourly rate is subtracted from the retainer balance. When the retainer balance drops below a certain dollar amount, say $100.00, the client will “replenish” the retainer back to $500.00.

This also works for clients who pay you a flat fee or subscription rate.

For these types of projects, the client pays you a specific amount of money each month (or quarter or year) to ensure your availability for ongoing projects. The client will pay the specific fee amount at the same time (usually the beginning) of the month (or quarter or year). Work does not continue until the client pays. Once the retainer is paid, you continue the work.

One way to ensure that you receive prompt payments for these types of fee arrangements is to get a credit or debit card authorization in advance for the duration of the contract. That way, the fee amount is charged to the debit or credit card at the same time each month, and there is no delay in payment.

I have found that using the Replenishing Retainer clause in my engagement agreements has resulted in consistent cash flow. I'm also not chasing clients for money when they don’t pay invoices on time. I’ve also found that I usually end up with issues getting paid on time when I don’t use this type of arrangement.

So, make sure you get paid on time with the Replenishing Retainer.

If you have cash flow issues or problems getting paid on time, implement the Replenishing Retainer right away. And let me know what you think about this cash flow solution, or feel free to ask questions, in the comments below.

Steve Zakrocki Steve Zakrocki is a lawyer who represents freelancers and other small business owners. He runs the website Legal Ed for Freelancers, which educates freelancers on legal issues.

View Website