Last editedApr 20222 min read
If you work for clients on an ongoing freelance basis, retainer billing offers an easy way to stabilise cash flow. Here’s a closer look at how retainer fees work, their benefits, and how to make this type of payment plan work for you.
What is a retainer payment plan?
A retainer fee describes a type of payment sent to a contractor or freelancer. When a client and contractor enter a retainer contract, this means that the client has ongoing access to the contractor’s time and skills according to the contractual terms. Rather than paying for a single service or product as it’s delivered, the customer pays for continual service on demand, or a series of tasks delivered over time.
Not all freelance or contract work will be suited to a retainer payment plan. Retainer fees are often charged by professional service providers like consultants, IT experts, and lawyers. For example, imagine that a property developer requires the services of an attorney to assist with investigation and paperwork throughout the development of a new shopping centre. This process can take several months, if not years, for approval and completion, during which time they wish to have free access to the attorney’s legal expertise. The developer would enter a retainer payment plan to commit the attorney to the project throughout this process. In return, they will pay a fixed fee at regular intervals.
How do retainer contracts work?
As you can see, retainer agreements are different to paying for a specific service or product. So, how do retainer contracts work exactly?
Advance payment retainers are paid upfront, or before a service is completed.
Retainer fees are not paid for any specific outcome. Instead, they pay for a service.
Retainer fees involve regular, recurring payments.
Some advance payment retainers are based on time, while others are based on value. Time-based agreements cover a specific fee, with the contractor expected to be available for certain hours. Value-based agreements are more general, with the contractor expected to complete a set number of tasks.
What are the benefits of retainer payments?
For freelance professionals or contractors, it’s clear to see the benefits of retainer agreements.
It improves cash flow by guaranteeing a regular, reliable stream of recurring income.
It gives freelancers a clear view of their workload for the upcoming month, making it easier to schedule additional projects.
It gives both parties the chance to develop a strong, trusting working relationship over time.
There are also benefits for the client, when a mutually agreed-upon contract is in place.
It ensures that the client will have access to the expertise that they need to complete a project.
It can be more economical in comparison to hiring a professional on a full-time basis with benefits.
It allows clients to build their working networks with a pool of contractors that understand the business.
Should you charge a retainer fee?
Despite the numerous benefits of retainer fees, they do also come with some potential drawbacks. For example, clients might hesitate to work with a new, unproven contractor who demands advance payment on retainer. Contractors might also feel pressured to charge a discount, which can lead to lower payments in the long run.
Strong communication is key to making the retainer payment plan work for both parties. The client needs to have a degree of trust in the contractor, while the contractor must clearly define all services, terms, and conditions.
This also extends to invoicing and payment. If you’re setting up an advance payment retainer, Direct Debit is an ideal method. The client only needs to set up the retainer payment plan once, after which time the business can control the frequency and amounts of payments according to the contract. GoCardless facilitates pull-based Direct Debit payments on retainer to improve cash flow and reduce failed payments for a better working relationship between contractor and client. Best of all, you can get set up in less than a day.
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.