Client retainers in a Nigerian or Kenyan law practice
How a Nigerian or Kenyan law practice records a client's upfront retainer, draws fees against it and returns the unused balance at the end.
By Achekam · · 5 min read · For Legal businesses in Nigeria, Kenya
A new client walks into a Lagos or Nairobi practice with a land dispute, a company registration or a contract that has gone wrong. Before any work starts, the practice asks for a retainer: an amount paid upfront, in naira or shillings, that the practice will draw against as the work is done.
Retainers protect the practice from clients who disappear without paying. They also create questions that many smaller practices answer loosely. Whose money is it on the day it arrives? When does it become fee income? And what happens to the part that is not used? A practice that cannot answer those clearly, from its own records, risks both a dispute with the client and trouble with its professional body.
A retainer is a deposit, not the final bill
Investopedia defines a retainer fee as an advance payment made to a professional, such as a consultant or a lawyer, to secure their services, and notes that it usually does not represent the total final cost of the services. Its explanation of retainer fees walks through how the money is held, earned and returned.
Investopedia's own example makes the arithmetic plain: a retainer is set to cover a certain number of hours at the professional's hourly rate. If the matter takes twice as long, the client is billed for the extra hours. If it is resolved sooner, the unused portion is refunded.
So tell the client from the start, in the engagement letter, that the retainer is an advance and not a fixed fee. Say how the practice will report on it, and when a top-up may be requested.
Unearned and earned: when the money becomes yours
Investopedia explains that an unearned retainer is held in a retainer account before services are provided and does not belong to the professional until work begins. The earned portion accrues as the work is done, measured by hours worked or by tasks or milestones completed.
That gives the practice a simple rule for its books:
- On the day the retainer arrives, the whole amount is still the client's money held by the practice. It is a liability, not income.
- As work is done and billed, the part covered by each fee note becomes the practice's income, and the liability shrinks by the same amount.
- At the end of the matter, whatever is left still belongs to the client.
Investopedia also states that retainer fees usually remain separate from the professional's hourly earnings, which ensures the money is not used for the practice's own purposes before the work is done. In practice that means not spending a client's unearned retainer on rent or salaries, however tight the month is.
Holding the retainer on the client's account in Achekam
In Achekam, a business records customer payments against one invoice or spread across a customer's invoices; a part payment leaves an invoice part-paid, and any extra is held on the customer's account. A retainer paid before any fee note exists is exactly that kind of extra: the receipt is recorded, and the amount sits as credit on the client's account, owed back to the client, until there is a fee note to apply it to.
Agree with your accountant whether that credit is enough, or whether larger retainers should also be moved by manual journal to a separate liability account for client deposits. Achekam refuses a journal that does not balance or is dated in a closed month, and a posted journal is corrected only by reversing it.
Keep the money itself apart too. If your professional rules require client money to be held in a separate bank account, record the receipt into that account, not the practice's operating account.
Drawing fees against the retainer
As work progresses, the practice issues fee notes. In Achekam an invoice starts as a draft that can be changed or deleted, and issuing it takes the next number in the sequence and posts it to the ledger as debtors, sales and output VAT. A receipt can be re-allocated, so the credit held on the client's account is then applied to the fee note, and the client's balance shows what remains of the retainer.
Investopedia states that a client can ask for an itemised invoice listing the work performed. Make that the default rather than a favour. Describe the work on each fee note clearly enough that the client can see what the retainer has paid for: the consultation, the drafting, the court appearance.
A worked example in words. A client pays a retainer for a commercial lease review. The receipt is recorded and held as credit. After the first month's work the practice issues a fee note for the hours spent and applies part of the credit to it. The client's account now shows the fee note settled and the rest of the retainer still held. When the lease is signed, the final fee note uses up most of what is left.
If a fee note was wrong, a credit note is issued from that fee note, in full or for chosen lines, and posted to the ledger; leftover credit is held for the client. There is no credit note without the fee note it corrects, so every adjustment is tied to a bill the client has seen.
Returning what is left
Investopedia states that lawyers are ethically bound to return any unused portion of a client's retainer. When the matter ends, send the client a final account showing the retainer received, each fee note applied against it, and the balance due back. Then pay it back promptly.
In Achekam, administrators can refund or reverse a receipt. Record the refund against the client's remaining credit so that the account closes at nil, and keep the proof of payment with the matter file. A clear final statement and a prompt refund also leave the client with a good last impression of the practice.
Check your professional rules first
Investopedia describes practice in the United States. In Nigeria and Kenya, the rules that govern how legal practitioners and advocates hold, record and account for client money come from the local legal profession's own regulators and legislation, and they may be stricter than general good practice. Before you design your retainer process, check:
- Whether client money must be kept in a separate client or trust account, and what that account must be called.
- What records of client money you must keep, and for how long.
- How quickly unused money must be returned when a matter ends.
- Whether interest earned on client money belongs to the client or the practice.
Setting it up
Write the retainer terms into your engagement letter, set up how receipts are held on account, and agree with your accountant how deposits appear in the balance sheet. For collecting the deposit online, see taking a fee deposit by pay link, and for the end of the matter, closing a matter with a final account.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
