Cash is king for law firms – top 3 tips to improve your working capital

When industry sectors undergo a period of change companies typically focus on top line revenues rather than cash, aka working capital. In the current (post-recession) environment I am seeing an increasing number of law firms needing cash – either to support growth or to fund operations.

The legal sector is currently going through a period of consolidation. There are lots of mid-market law firms that offer broadly the same services. In such an undifferentiated market competition is rife and this is putting pressure on top line revenues…hence the renewed focus on top line revenue.

So, why should you focus on working capital?

  • Grow more easily - If you free up cash you become less reliant on external funding so you don’t have to borrow as much to grow your business.
  • Become a takeover target - If you can get your working capital under control you make your firm a more attractive proposition to a buyer.
  • Retain staff – if you free up cash you have funds to draw on to keep your partners and other key staff.

Below I have listed the top 3 things that I think you can focus on to improve working capital:

  1. Contract negotiation – Build terms and conditions into a contract to help you improve your working capital. For example offer a discount to clients if they pay before an invoice’s due date. This could be a sliding scale offering a higher level of discount closer to the invoice date and a smaller reduction closer to the due date.
  2. Communication – Inform your clients about the costs of a project as you progress through it to get sign off as you go. Keep a regular dialogue going on the level of fees as you’re incurring them. Your clients will be grateful for this too as the final bill won’t be unexpected.
  3. Culture – Create a ‘cash culture’ where cash is king. Incentivise partners and staff to collect cash by including cash collection targets in their measures of performance.


For a little more detail on this watch our latest video on 'Finding cash: To thrive or survive'.

Over to you

What do you do to improve your working capital? What challenges have you had in creating a cash culture? How receptive have your clients been to regular communication on billing? Share your thoughts via the comments box below (anonymously if you’d like).

Or, if you have a working capital issue you’d like to discuss confidentially set up a meeting using the details below.

Glen Babcock | Legal Working Capital Specialist
Profile | Email |  +44 (0)20 7804 5856


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