How to Handle Customer Retainer and Subsequent Invoicing in QuickBooks

There are two types of retainer fees: one type is used as a downpayment where a customer or client pays a lawyer an amount, for example, and when the lawyer does work for the client he Invoices for that portion and offsets the Invoice total against the downpayment. The Invoice portions for work done are recorded as Income, with the corresponding total going to the retainer liability account decreasing the customer retainer balance. At the end of the year, depending on the agreement both party has, the retainer balance will either be returned to the customer or forward to the new year.

The other type of retainer is when a customer or client pays a company an amount of money for a period of time – say one year, so that they can have the privilege of using their service(s) during that period. This type of retainer in non-refundable, whether the client uses the service(s) or not, for this period. At the end of the period – usually a year, the retainer should be moved from the liability account to an Income account. This can be done via a journal entry by debiting the retainer liability account and crediting the Income account.

There are usually more than one ways to do things in QuickBooks, but this is the best option to handle customer retainer and subsequent invoicing in QuickBooks, and it can be used for both scenarios above:

• Create a Liability Account called something like “Retainer Liability” using a current liability account.
• Next, create an item called something like “Retainer” and map it to the retainer liability account you previously created.
• Use that item on the invoice or sales receipt for the retainer transactions. This will increase the retainer balance.
• After the work is performed, create an invoice or sales receipt like you normally would, with the appropriate sales items. Then add a line with a negative amount using the retainer item. This will increase sales Income and decrease the retainers account, as well as reduce the Invoice or sales receipt down to the remainder due.

Reconciling the Retainer Account

To reconcile the retainer account each month, go to your Chart of Accounts and reconcile your Retainers as you would a credit card or bank account. There is only one difference; enter your statement balance for the end of the month as ZERO. Then check off all the retainers that were charged and used up. The total of the checked items should equal zero, and the total amount owing should consist of all the unchecked items.