Retainer payments aren’t income when you receive them. They’re a liability because you owe the client future work. Recording them as revenue immediately overstates your income and creates problems at tax time. QuickBooks doesn’t have a built-in retainer feature, so you need to set up the workflow yourself using standard accounting principles.

Start by creating a liability account. Go to your Chart of Accounts, add a new account, and choose “Other Current Liabilities” as the account type. Name it something clear like “Client Retainers” or “Customer Deposits.” This account holds retainer money until you earn it through completed work. Getting this QuickBooks Online setup right from the start saves headaches later.

When a client pays a retainer, record it as a bank deposit and categorize it to your Client Retainers liability account. The money shows up in your bank account, but it doesn’t hit your income statement. It sits on your balance sheet as a liability until you do the work.

As you complete work, create invoices for services performed. Then record a payment against that invoice, but instead of depositing to your bank account, post the payment against the Client Retainers liability account. This draws down the retainer balance and converts that portion to earned revenue. Your income statement now reflects money you’ve actually earned.

Track each client’s retainer balance carefully. If you have multiple clients on retainer, run reports filtered by customer to see who has what balance remaining. QuickBooks lets you view liability account activity by customer, which helps you see each client’s status at a glance. Communicate proactively when balances run low so clients aren’t surprised when you need a refill.

The common mistake is recording retainers as income when received. This inflates revenue in months you collect retainers and understates it when you do the actual work. Your profit margins look distorted, and you might owe estimated taxes on money you haven’t truly earned yet.

If tracking retainers feels complicated on top of everything else, that’s a sign your bookkeeping needs attention. A Findlay bookkeeper can set up proper retainer tracking and handle the monthly reconciliation so your books accurately reflect what you’ve earned versus what you still owe clients in future work.