Retainer invoices: how to bill a retainer and get it paid on time

The word "retainer" covers two arrangements, and they are billed differently.

This is different from progress billing, where a fixed-price project is invoiced in stages as it is completed. A retainer pays for time or access going forward. Progress billing pays for a defined project as it moves.

If you are a law firm, retainers paid in advance usually fall under client money or trust account rules in your state or country. Those rules sit outside this guide. Check them with your regulator before you set up retainer billing.

A retainer invoice needs everything a normal invoice does: your details, the client's details, a unique invoice number, the date, the due date, the amount and how to pay. It also needs four things a normal invoice does not:

1. The word "Retainer" in the title or first line. The client's accounts payable team needs to see at a glance that this is an advance payment, not a bill for work they have to approve.
2. The period or scope it covers. "Retainer for April 1 to April 30" or "Advance retainer for [Project name]". Without it, an approver may hold the invoice until they see the work.
3. What is included, and what is not. The hours, deliverables or service level the fee covers, and the rate for anything beyond it.
4. For an advance retainer, the balance. Opening balance, amount applied, closing balance. The client should never have to work out how much of their money you still hold.

Add the client's purchase order number if they use them. Retainers are often approved once on a PO that lasts a year, and an invoice without it can bounce back every month.

Bill a monthly retainer before the month it covers, and make it due on or before the first day of that month. If it is billed at the end of the month on 30-day terms, the client is paying for work two months after it started, and the retainer has turned into ordinary credit.

Say a marketing agency has a client on a $6,000 monthly retainer that covers 40 hours of work. The agency invoices on the 20th of each month for the next month, due on the 1st. The April retainer is invoiced on March 20 and due April 1.

RETAINER INVOICE

Invoice number:   [Invoice number]
Invoice date:     [Invoice date]
Due date:         [First day of the period]
PO number:        [PO number, if the client uses one]

Bill to:          [Customer name]
                  [Customer accounts payable email]

Monthly retainer: [Service name]
Period:           [Start date] to [End date]
Includes:         [Hours or scope covered]

Retainer fee                              [Amount]

Total due by [Due date]                   [Amount]

Additional work beyond the included [hours or scope] is billed
at [Rate] and invoiced with the following month's retainer.

Pay by:           [Payment details]
Questions:        [Your name], [Your email]

Billing overage

When a month runs over, bill the extra on the next retainer invoice as a separate line, with the hours and the rate. Say the same client used 46 hours in April against 40 included, and the agreement prices extra hours at $150. The May retainer invoice carries two lines: the $6,000 May retainer, and 6 hours of April overage at $150, which is $900. The total due is $6,900.

Tell the client when they are getting close to the limit, before they pass it. An overage line nobody expected is one of the most common reasons a retainer invoice gets queried.

An advance retainer starts with one invoice for the lump sum. Make it due before work begins, and do not start until it is paid. Starting while it is "in process" means you are working without the retainer you asked for.

After that, you invoice the work as normal, at whatever interval you agreed, and apply the retainer to each invoice. Each work invoice shows the charges, the amount taken from the retainer, and the balance left.

Say a consultancy takes a $10,000 advance retainer and bills its time monthly against it:

By month 3 the retainer has run out and the consultancy is billing in arrears again. The fix is a top-up clause agreed at the start: for example, when the balance falls below $2,500, you invoice a top-up to bring it back to $10,000. Under that clause, the month 2 invoice would carry a top-up request for $7,700, and the work never runs ahead of the money.

Hi [First name],

Your [Month] work invoice is attached: [Amount] for [Brief description],
applied in full from your retainer.

Retainer balance before this invoice:   [Opening balance]
Applied to invoice [Invoice number]:     [Amount applied]
Retainer balance now:                    [Closing balance]

As agreed, when the balance falls below [Floor], we top it back up to
[Retainer amount]. The top-up invoice for [Top-up amount] is attached,
due [Due date].

Thanks,

[Your name]

When the work ends, settle the balance in writing. Send a final statement showing what was billed and what was applied, then refund any unused amount or apply it as the agreement says. A statement of account is a good format for this.

How an advance retainer is recorded

An advance retainer is money you hold for work you have not done yet. In most bookkeeping, it is recorded as a liability (often called customer deposits or unearned revenue), not as income, until you bill the work it pays for. How sales tax or VAT applies to advance payments depends on where you trade, so ask your accountant before the first one.

Most retainer disputes come from something nobody wrote down. Put these in the agreement or the quote, in the same words you will use on the invoice:

• The fee and the period. "$6,000 per calendar month, invoiced on the 20th for the following month."
• The due date. "Due on the first day of the month it covers." See our guide to invoice terms and conditions for wording.
• What is included, in hours or deliverables, and the rate for anything beyond it.
• Whether unused hours roll over, and if so, for how long.
• For advance retainers, the top-up floor and what happens to any balance when the work ends.
• What happens if a retainer is not paid. For example, that work pauses after a set number of days. Agreed in advance, that is a term, not a threat.

A late retainer is more urgent than a late invoice for finished work. Each day it goes unpaid, you are doing work the retainer was supposed to fund. Follow up the day after the due date, and ask for a date.

Subject: [Month] retainer, invoice [Invoice number]

Hi [First name],

The [Month] retainer, invoice [Invoice number] for [Amount], was due
on [Due date] and I can't see it has arrived yet. A copy is attached.

Could you let me know when it will be paid? If it's waiting on a PO
or an approval, tell me who to send it to and I'll sort it today.

Thanks,

[Your name]

If the client pays only part of it, record what arrived and ask for the rest. Our guide to partial payments covers how. For wording at later stages, use the past due invoice email templates.

If retainers are regularly late, look at the timing first. Many accounts payable teams pay on fixed days each month. If yours lands just after their payment run, it waits a month whatever the due date says. Ask when they pay suppliers, and invoice early enough to make that run.