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Retainer FAQs
Summary: Answers to the most frequently-asked Clients & Profits retainer questions. Accounting for the client retainer balance is simple and flexible in Clients & Profits. Below, you'll find answers to the most commonly-asked questions on how to account for retainers in Clients & Profits.
Q. What is Clients & Profits' definition of a retainer?
Retainers allow an agency to bill a client before actually incurring any costs. Retainers are not monthly fees for services that will be billed repeatedly, but rather a pre-payment for services that will eventually be billed. These eventual billings can be from any of a client's job tickets. Clients & Profits treats this pre-payment as a liability in the general ledger (unearned income), then later moves it out of this account and into revenue when job's are invoiced and the retainer is applied to it (income is now earned).
Q. How do I set up a retainer for a client?
A retainer schedule can be added for a client. A schedule has up to twelve future retainer billings but does not actually create a billing. It sets up the information used on the invoice. Once that schedule has been met, it is cleared to make way for a new schedule. To add a client retainer schedule, choose My menu > My Clients > select the Edit button > Retainer Schedule tab.
Q. How do I add a retainer billing?
Choose Accounting menu > Billing/Accounts Receivable. Choose the Add button > Retainer Billing. Enter the client's code and press tab. From the client's schedule, select which period(s) to bill by clicking the "Bill these" checkbox. These lines are added to the billing. When finished, click save.
Q. How do I account for retainers in the general ledger?
A retainer is not income. It is a liability (unearned income) and should be its own general ledger liability account. At any time, the total remaining retainer balances for all clients should match the balance of this account in the general ledger. A retainer billing credits this account and debits the accounts receivable account.
Q. Do retainers affect income?
No. A retainer is a liability to the agency. Income is effected only when other billing types are generated, such as estimate billings, job billings, progress/final billings, etc. However, a retainer balance can be applied against the other revenue impacting invoices (see below) to reduce or clear the invoice's balance.
Q. What's the difference between a retainer and an advance billing?
A billing of any type issued for a particular client can be paid with that client's retainer balance. An advance billing is limited to a particular job and is applied only to that job ticket's future billings. A retainer is much more flexible as it can be applied to invoices on any job for this client, and miscellaneous or finance charge billings for this client. The only limitation is that the retainer can only be applied to invoices for the client for whom the retainer was created. Advance Billings are available in the Agency version.
Q. What's the difference between an unused retainer and an unpaid retainer?
An unused retainer is the balance of the retainer that has not been applied to billings for this client. An unpaid retainer is a retainer billing that is unpaid by the client, just as any invoice is unpaid by a client that shows up on the client invoice aging. A retainer invoice is paid off by the client like any other invoice on the aging, by applying a client payment against it.
Q. How do I know if a retainer billing has been paid by the client?
The Client Retainer Aging lists all of the unpaid retainer invoices for all clients. Choose Snapshots menu > Client Account Aging. Choose the Retainer Aging tab. Unpaid retainer invoices will show up on the standard client invoice aging as well for each client, with an asterisk highlighting that it's a retainer invoice. Also, in the client file, client's retainer schedule shows on which invoice each amount was charged. These invoices can then be reviewed, but it's easier to just print the retainer aging.
Q. Can I use retainers for recurring income billing or to bill my monthly time retainer fee?
No. Retainers are used to setup a client deposit, a liability. To bill recurring income, use the recurring billings feature.
Q. Should the payment of a retainer invoice be entered as a retainer payment?
No, a retainer invoice is an Accounts Receivable invoice that shows a balance due and is on the client aging as an outstanding invoice. The payment is applied to the retainer invoice in the same manner as applying a payment to any outstanding client invoice. To record the client payment of the retainer billing, choose Accounting menu > then select the Client Payment option.
So, if you issue an invoice, then issue a retainer invoice to the client (which creates the unused retainer balance), then pay off this retainer invoice with a standard client payment, as you would with any client invoice.
A Retainer Client Payment is another way to generate an unused retainer balance for a client where the client sent you a pre-payment check without being issued an invoice for this check.
Q. How can I record a retainer before starting work on a client's job?
The client's retainer balance is updated when a retainer billing is posted or when a retainer client payment is posted. It shows as the unused retainer balance in a client's retainer screen.
Q. How should I enter money that a client sends to us without our having invoiced them first?
When a client sends money without having been invoiced, that money can be added to the client's retainer account. Choose Accounting menu > Client Payments and add a payment. Select the payment type as retainer/deposit/advance. Credit the retainer liability account in the general ledger. The payment can then be added and saved without applying it to an Accounts Receivable invoice. Once posted, this money is available to apply to a client's unposted invoices.
Q. How do I apply a retainer payment to a current invoice?
A retainer is applied to unposted invoices only. With the unposted invoice on the screen, choose the Edit menu > Apply Retainers. The Apply Retainer window shows the client's current retainer balance, the total charges on the invoice, less the amount of the retainer to be applied to this invoice, the ending balance due (if any), and the ending retainer balance. The dGL account is the retainer liability account that was credited when the retainer was added and is the default account number. It is also helpful to enter a memo such as "less retainer applied" in the area provided, as this memo prints on the completed invoice.
An invoice with a retainer applied against it will show the final balance of the invoice, less the retainer applied, on the printed invoice. When this invoice is posted, it creates a second set of journal entries that debit the retainer liability account and credit the accounts receivable account for the amount of retainer applied to the invoice. The invoice, of course, will also post its standard debit to accounts receivable and credit to the revenue accounts for the amount of the invoice.
Q. How can I apply a retainer from one client to another client; for example, two divisions of the same company?
A client retainer is client specific and cannot be split between two or more clients. However, to "transfer" a client's retainer balance from one client to another do this: Add a negative retainer client payment to the client who has the balance and a positive retainer client payment to the other client. Instead of debiting the cash account, you can choose to debit the suspense account (999998) if you want to avoid an audit trail through the cash account. The positive and negative debit from the positive and negative retainer client payments will offset regardless.
Q. How do I refund the unused part of a retainer?
A client's retainer balance cannot be affected by issuing a check. Therefore, the refund is a two-step process involving reducing the client retainer balance and issuing a check. A negative retainer client payment is entered to reduce the unused retainer balance by the amount to be refunded. Debit the suspense account (999998) and credit the retainer liability account. To issue the refund check, choose Accounting menu > Checkbook. Write an overhead expense check (Add buton > select Overhead Expense). Debit the suspense account (999998) and credit the checking account. The negative debit on the retainer client payment offsets the positive debit entered on the check.
Q. How can I apply a client's retainer to old invoices that have already been posted into a prior closed year? I don't want to unpost the invoice.
The amount of client's unused retainer balance will be adjusted via a negative retainer client payment. Enter a negative amount to reduce the client's unused retainer balance. Change the dGL to suspense (999998), keep the cGL as the retainer liability account. This negative retainer payment reduces the client's unused retainer balance and decreases the account balance in the retainer liability account.
The outstanding invoices are paid by adding a standard positive client payment for the same amount that you reduced the unused retainer balance. Change the dGL to the suspense account. This will offset the negative debit to suspense in the negative retainer client payment.
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