Houston is recognized worldwide for its energy industry—particularly for oil and natural gas—as well as for biomedical research and aeronautics. On April 4, 2022, Hewlett Packard Enterprise relocated its global headquarters from California to the Greater Houston area.197 The Houston Ship Channel is also a large part of Houston’s economic base. When you receive an upfront https://www.bookstime.com/ deposit or retainer from a customer, you need to record it. The key to effective retainer management lies in meticulous bookkeeping, leveraging advanced software, and adhering to rigorous compliance standards. Consulting firms can optimize their retainer management process by following these targeted strategies.

Step 1: Set up an account for upfront deposits or retainers

• This requires robust accounting systems capable of monitoring ongoing engagements and the corresponding revenue recognition.
• If a customer cancels a job for which you accepted an upfront deposit or retainer, the deposit doesn’t remain as a liability.
• This document outlines the terms and conditions under which services will be provided, ensuring that expectations are aligned from the outset.
• Consulting firms can optimize their retainer management process by following these targeted strategies.

In addition, some public school districts also have their own charter schools. Houston is bookkeeping also one of the first cities in the world to have a major esports team represent it, in the form of the Houston Outlaws. The Outlaws play in the Overwatch League and are one of two Texan teams, the other being the Dallas Fuel.

Step 1: Create a liability account

• For this reason, these fees usually remain separate from the hourly wages of the consultant, freelancer, or lawyer.
• When you apply an upfront deposit or retainer to a customer’s invoice, you can enter it as a line item on the invoice, reducing the total of the invoice by the amount of the deposit.
• This fee is paid to a professional in return for their reputation and expertise.
• These fees are typically paid up front and are found in a variety of professional fields, particularly legal, consulting, and freelance work.

When managing bookkeeping for retainer fees and advanced client payments, consulting firms face several challenges that can affect their financial reporting and cash flow management. These challenges require careful strategies and precise accounting practices. Retainer fees serve as prepayments for future services, retainer accounting where clients pay upfront to secure the commitment of a service provider. In accounting, these fees are recorded differently based on whether they are considered earned or unearned income. When a retainer is received, it is initially recorded as a liability on the balance sheet under ‘deferred revenue’ or ‘unearned income’ because the service has not yet been provided.

• Retainer fees are a common practice in various professional services, providing both clients and service providers with a structured financial arrangement.
• You usually pay a retainer to a third party who the payer has hired to do something on their behalf.
• If you prefer to invoice customers for deposits or retainers instead of receiving them directly, skip to Option 2.
• This systematic recognition aligns with the matching principle in accounting, which stipulates that expenses should be matched with the revenues they help to generate in the same period.
• For instance, if a retainer covers a year-long service agreement, a twelfth of the retainer fee would typically be recognized as revenue each month, assuming an even distribution of service provision.

Compliance and Legal Considerations

When you provide the product or service for which you accepted an upfront deposit or retainer, and it’s time to collect payment, you can apply the upfront deposit or retainer as payment on the invoice. The statement of cash flows also reflects the impact of retainer fees, albeit in a different light. While the cash from retainers is received upfront and shown in the operating activities section, the recognition of revenue in the income statement does not immediately affect cash flows. This distinction is important for stakeholders analyzing the company’s cash generation efficiency, as it highlights the timing differences between earning revenue and receiving cash.

Note that we see a LOT of legal fees, and even have published a list of the top lawyers serving startups. Depending on the type of service, the contract’s length, and the deal’s specifics, retainer agreements can be very different. The service provider and the client need to understand the terms and conditions of the agreement before entering it. A retainer fee used as a deposit or prepayment for a project or service applies to the total cost. In the example above, the retainer is considered unearned until the court case is closed and finalized. These unearned fees do not belong to the person performing the tasks—in this case, the lawyer—until work begins.

For example, a company might pay a specific retainer to a marketing consultant for the development of a new advertising campaign. The fee covers the consultant’s work on that particular project, and any additional services beyond the agreed scope would typically incur extra charges. Specific retainers provide clarity and predictability for both parties, as the expectations and deliverables are clearly outlined from the outset.