By Mark E. Engelberg, CEO, TimeLinx
In the realm of professional service organizations, one term that frequently crops up is “retainer.” While many are familiar with the term, its true significance and function often remain mysterious. To demystify the concept and shed light on its role, this blog post will dive into what a retainer is and how it functions for professional service organizations. Whether you’re a consultant, attorney, or creative professional, understanding the power of retainers is essential for sustainable success in today’s competitive business landscape.
Unknown even to many TimeLinx™ PSM long-term customers is the full functionality of retainers in TimeLinx. TimeLinx has taken the definition of a retainer as written below to a deep level. Embedding retainer functionality inside our PSM gives the user tremendous new abilities when delivering services, though retainers within an ERP system are common for other accounting operations.
The singular purpose of retainers is to track money that is pre-paid, generally for work that is yet to be delivered. By GAAP accounting standards, a retainer is to be shown as a liability until it’s consumed. You either need to deliver the work or return the retainer. But how do you track all that in the complexity of many different services that may be delivered?
TimeLinx automates multiple processes:
· Retainers can be linked to single or multiple jobs so that a single retainer can be used to fund various endeavors simultaneously while additional retainers can simultaneously fund other jobs. All at the same time for the same customer. For example, both an annual service contract or tech support agreement and longer-term jobs could all pull from a single retainer without losing track of what was consumed by each one.
· TimeLinx decrements the correct amount of retainer funds based on how each job’s Billing Modes rates are set. Different consultants, different jobs, different time frames, different days of the week, and more can all pull different calculated fund amounts from the retainer. This eliminates hours of time-consuming work.
· Retainers can also end on a specific date so if the funds are not used by that date, such as the end of the calendar year, they are forfeited. Special rates can be in effect during promotional time periods after which they revert to a standard job rate.
· TimeLinx takes retainers even further when it comes to replenishment. One function sends a replenishment request to the customer in advance to replenish their retainer for a pre-defined amount. Other functions handle special instances such as when funds run out but work needs to continue to keep the job on time. And there’s more.
Here’s the definition of a retainer: A retainer is an agreement between a professional service provider and a client, where the client pays a fixed fee in advance to secure the availability and services of the provider. It serves as a commitment from the client to retain the services of the professional over an extended period, typically on a monthly or annual basis. Often the pre-payment comes with a benefit to the Client through a discounted rate or other benefit.
So what are the benefits of retainers to the vendor providing the services?
Ensures Steadier Cash Flows
For professional service organizations, retainers offer the significant advantage of a predictable cash flow. By securing a retainer agreement, service providers can count on a steady income stream, irrespective of the number of projects they undertake. This financial stability enables organizations to plan their resources effectively and allocate them where they are needed most.
Prioritizes Client Relationships
Retainer arrangements foster long-term partnerships between professional service organizations and their clients. By entering into a retainer agreement, clients demonstrate their commitment and trust in the service provider. In turn, this allows service organizations to prioritize these client relationships, providing dedicated attention and delivering tailored solutions to meet their evolving needs.
Promotes Proactive Client Engagement
Retainers encourage proactive engagement with clients. As service providers have a committed relationship with the client, they can actively reach out, provide regular updates, and offer strategic advice. This level of engagement goes beyond just transactional work and contributes to building a stronger rapport with clients, fostering loyalty, and generating additional business opportunities.
Mitigates Revenue Volatility
Professional service organizations often face revenue volatility due to the nature of their work. Retainers act as a cushion against this volatility by providing a baseline revenue stream. In periods of uncertainty or when project-based work is scarce, retainers help stabilize the organization’s financial health and reduce the impact of market fluctuations.
Expands Growth Opportunities
Retainers not only offer stability but also open doors to expansion and growth. By securing long-term retainer agreements, professional service organizations can allocate resources and invest in business development activities confidently. This stability allows them to pursue new opportunities, expand their client base, and explore innovative service offerings, ultimately fueling their growth and success.
Retainers play a crucial role in the functioning of professional service organizations. They provide financial stability, prioritize client relationships, streamline workflow efficiency, and ensure prompt service delivery. Retainers also promote proactive client engagement, enable flexible resource allocation, mitigate revenue volatility, foster collaboration, and open doors for growth opportunities. By understanding and harnessing the power of retainers, professional service organizations can establish a solid foundation for long-term success and thrive in today’s dynamic business landscape.
Please contact TimeLinx at Info@TimeLinxSoftware.com for more information.
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TimeLinx delivers innovative project & service management software as a complete solution that perfects the sell-track-manage-support-bill cycle that services organizations must have to delight their customers; TimeLinx brings the cycle together in a single application that offers less frustration, better project management, complete reporting, and improved profitability – all specially designed for Infor and Sage.