Top UK law firms are having to wait an average of 130 days to get paid by clients for their work, a new study has revealed.
The data, collated by executive search and market research firm Edward Drummond, shows that this payment period for the 100 highest-ranked firms was 19 per cent longer than the average for all UK law firms.
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This may come as a surprise, since these well-equipped firms are likely to have larger finance teams, better IT and payment systems, and more financially liquid clients.
“A four-month wait to see cash in the bank is a long time – even for the largest law firms,” said Edward Drummond partner Gareth Ward.
“Reducing debtor days can be particularly difficult for those firms involved in long-running cases, in areas such as banking litigation, family or personal injury work.”
Minimising the number of so-called “debtor days” frees up cash flow for working capital and future investment plans, and reduces a firm's exposure to bad debt such as a client becoming insolvent.
But Edward Drummond's data indicates that debtor days have in fact increased by 30 per cent since the financial crisis, from 100 days in 2007 to 2008.
According to the firm, this suggests that the issue of late payment has become ingrained in business practice despite many corporates being in better financial health.
A number of law firms have been introducing measures to reduce the payment time, such as agreeing to be billed ahead of time, discussing interim billing options, investing in payment processing software and improving communication between client-facing and back office teams.
“As firms expand, it’s vital that they keep tabs on invoicing procedures across different areas of the business. Ensuring cash-flow is on a firm footing is essential for maintaining good financial health,” said Ward.
“Many Top 100 firms have invested in streamlining their credit facilities and in more sophisticated matter management software, which should help speed up debt collection.”