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The ability of UK law firms to bill promptly and collect debts within a reasonable time period has deteriorated since last year, PricewaterhouseCoopers' (PwC) annual financial management survey has revealed.
The value of debts older than 90 days among the top 25 firms increased from 19 per cent in 2003 to 24 per cent in 2004. Older debt is of particular concern because it is less likely to be recovered. According to a member of the receivables management group at PwC James Craddock: "Much of the drive at law firms is on new debts, but old debts are the difficult ones and there's not enough focus on these."
The report, 'Financial Management in Law Firms 2004', also showed a significant increase in firms retaining profit to improve their working capital position. Last year, equity partners' current accounts provided an average of 42 per cent of the firms' total funding requirements, up from 34 per cent in 2003.
Craddock said it was important that partners and fee-earners were more focused on the entire process surrounding billing and not just on cash collection. "The process has to be correct right from the start," he said. "That means who to send the invoice to, what format the client wants the invoice in and what information the client requires."
Craddock said the results were evidence of the need for education on the impact of slow billing and fee collection. He added that most of the top 25 firms had central collection teams, but lawyers' confidence in these teams "was not always there, perhaps based on past mistakes".
The research was conducted last summer and featured 72 per cent of the top 25 UK firms and 47 of the top 100 firms.