Like most British businesses, law firms require access to smooth cash flow to function.
However, there are certain factors unique to the legal sector that can impede available funds. In this blog, we’ll take a closer look at the cash flow challenges solicitors face, and some suitable solutions that can streamline their operation. Read on to find out more.
Common law firm cash flow challenges
Legal processes can often be prolonged, affecting income. Drawn out cases, particularly those that end up in court can easily result in delayed settlements. This creates uncertainty in the law practice’s cash flow.
Late-paying clients can also cause problems. Clients, especially corporate clients, can take an extended time to settle their invoices, resulting in delayed payments.
Like other professions, legal work has a seasonal nature. Many UK-based solicitors encounter fluctuations due to this seasonality that impact their revenues. For example, lawyers offering a conveyancing servicer are often busy in the run up to Christmas, but much quieter in the months that follow.
Finally, law firms often have expensive overheads. Running a practice often comes with high operational costs that put strain on cash flow. This is especially so for solicitors with large offices to run, technology and staffing expenses.
Effective solutions to cash flow challenges
Law firms can put case management processes in place that more efficiently reduce how long cases take to reach settlements. Clearer client communication helps solicitors set more realistic timeline expectations.
To address clients who pay late, solicitors should set clear payment policies and terms. Established at initial consultations, clients understand their obligations. Law forms must also ensure invoices are issued promptly. Firms should review accounts receivable regularly and chase overdue payments. Implementing collection processes to resolve non-payments is advised.
Seasonality can be mitigated when law firms diversify the services they offer. Providing services that are in continuous demand throughout the year can keep cash flow stable.
Retainer agreements help secure client payments upfront, providing an instant spike in cash flow that enhances financial stability for the practice. Alternative fee structures are worth exploring such as subscription-based services, flat fees and contingent fees, to supply steadier income streams.
Budgeting and forecasting is critical to monitor and effectively manage cashflow at a law firm. These key processes help practices anticipate and answer future cash flow issues way in advance.
Finally, law firms should consider using new technology to support cashflow. Practice management software can help streamline operations, improve efficiency and reduce overhead costs. Automation can result in significant cost savings that boost cash flow.
Do you operate a law firm facing cashflow challenges?
At AJL Finance, we offer loans for solicitors and other professional practices like dentists, doctors and care homes experiencing cash flow problems. Unlike other industry providers, our process isn’t secretive, providing a straightforward solution for small-to-medium enterprises that helps them access the financial resources they require.
Apply for a loan today or use our eligibility calculator to see how much your firm can borrow to ease cashflow.
