Law firms are facing financial problems due to law billing
Law firms are having to wait more than three months on average to be paid for their services - far longer than most other businesses, says finance provider LDF
According to LDF, the average period between a bill being issued and payment being received is 94 days for solicitors firms (based on an analysis of 321 firms). By contrast, figures from the European Payment Index give the average payment duration in the UK in 2013 as 41 days for transactions coming both from businesses and the public sector. This far exceeds the rules implemented last year under the EU’s late payments directive, which sets a 60 day time limit for payments from businesses and 30 days for public authorities, after which interest and recovery costs can be charged.
Law firms bear brunt
Peter Alderson, Managing Director of LDF says:'SMEs are generally seen as being the ones who get the thin end of the wedge from late payments but these figures show that, as an industry sector, law firms are getting a really raw deal. Waiting more than twice longer than the UK average to be paid for work carried out, and still far in excess of the timeframe that the late payment rules state, is putting many law firms under huge financial strain.' He added that for many firms such 'disruption to cashflow is not easy to absorb, at a time when the financial pressures they are under from increased competition, squeezed margins and the impact of recent regulatory changes such as Legal Aid cutbacks and changes to no-win, no-fee cases are already intense.'
Small firms impacted more than bigger
Peter Alderson says that smaller firms are likely to be particularly badly affected as they are more likely to have greater numbers of private individual clients which may require a disproportionately high level of internal resources to chase up if necessary. 'Those who are not frequent users of legal services may be less geared up to pay up quickly,” says Peter Alderson. 'Lengthy payment delays on this scale could well tip firms which are otherwise very successful into dangerous territory. With bank lending still in short supply, more and more law firms are investigating what finance options are available to them to help them pro-actively manage their cashflow and provide a buffer against late payments.'