The time taken for law firms to be paid for work has fallen by a week, but still takes over four months to hit the accounts.
The billing time that is ’locked up’ has fallen by 7 days, but the time taken for UK law firms to get paid for their work still remains at over four months, according to the Chartered Accountants and Business Advisor Hazlewoods, who specialise in the legal profession.
The improving cashflow is in part because fee-earners are taking more responsibility for bringing in fees more quickly, thereby releasing vital capital for business investment and growth. Hazlewoods says that on average firms reduced the time locked up in unbilled ongoing work to 125 days in 2017, down 5 per cent from 132 in 2016. Hazlewoods continues to see a real fall in the time taken to get paid for those law firms that focus on improving their management of the billing process. Fee earners are being more proactive about raising bills earlier when work is completed rather than waiting until the month end. Some law firms have made small changes to their terms and conditions which make great commercial sense, such as asking for payments on account and raising interim bills as each stage of a matter is completed.
Hazlewoods explains that these cash flow improvements mean that law firms are able to free up funds that can be used for essential re-investment into the growth of their business. Hazlewoods adds that improvements to law firms’ cash flow is also reflected in a reduction in debtor days - the length of time clients take to pay them after being invoiced. This has dropped 8 per cent to 37 days from 40. Of course this will happen naturally when fees billed are in line with clients’ expectations and they have no cause to dispute the bill. Andy Harris, associate partner at Hazlewoods, says ‘converting completed work into income at a faster rate is good news for the legal industry and ensures consumers receive the best customer service at the same time. It’s a win-win situation.’ He adds, ‘it is a key indicator for business performance that historically too many lawyers have ignored – to the frustration of their finance department.’ However, while many firms are now focussing on speeding up the process, he warned ‘there is still lots of room for improvement, however, as a four-month delay in getting paid for work is much longer than any business would like.’