There are a number of different ways to collect payment from your clients, whether online, through recurring billing or with traditional invoicing. Each method has its own unique benefits, and you should consider which one best suits your business model. One particular kind of invoice is known as the retainer invoice, which is a document that can be sent to the client prior to the project starting.
Collecting advance payments like this is a great way to maximize your cash flow and ensure timely payments for your services. Read on to find out more about how invoices for retainer fees work and how they could benefit your organization.
Before answering the question ‘what is a retainer invoice?’, it’s important to understand the term retainer fee. In short, this is an upfront payment that is made to secure the services of a professional or organization, such as a consultant, freelancer, or any other business. They are usually paid to third parties that have been engaged by the payer to perform a service.
It should be noted that retainer fees cannot guarantee any outcomes or final products, and that they usually do not represent the final cost of the project. You can think of these fees like a deposit that secures a booking, rather than a full payment in advance. In addition, the retainer fee can be partly refunded if the costs of the services end up being less than anticipated.
Remember that when you collect advance payments from your clients, they cannot be immediately classed as income. Rather, these are defined as a liability against your company, and the revenue is only officially earned once you have either partly or completely delivered the product or service. A predefined period will be established, and if the service has not been delivered by the end of this period, then the customer is eligible for a partial or full refund.
Retainer invoice definition
If you are collecting retainer fees from your clients, then you will need to do so through a retainer invoice. These invoices for retainer fees are bookkeeping documents that must be created at regular intervals, allowing both the provider and the client to input payments into their accounting systems.
The retainer invoice should include the same details that you expect in a typical invoice. Namely, you should include your company name and address, the date of invoicing and due date, the name and address of the company or entity that you are billing, and a detailed breakdown of the products and services offered and the cost of these.
Essentially, an invoice for retainer fees doesn’t look any different to a regular invoice – the key difference is that the client is paying for services in advance rather than in arrears.
To make your life easier, you can use software that allows you to automate the process. If you collect regular retainer fees from clients, this can be a great way to save your business time and money.
Do fixed retainers need invoices?
Now that you understand the retainer invoice definition, you might be wondering about fixed retainers. These are part of a regular relationship that you may have with a client wherein you regularly provide the same services or products at an agreed rate. For example, a company may regularly use the services of a lawyer and pay for this using a fixed retainer.
With fixed retainers, you should have a regular invoicing period. Usually, this will be on a monthly basis, and you can use software to automatically send invoices at a predetermined time. Remember that the actual costs of the services may vary as the project goes on, so some funds may need to be refunded to the customer.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.