Equity partners at Clifford Chance will miss out on their quarterly profit payments after creating a lock-up lag of 20 weeks, representing app-roximately £200m in unpaid bills.
Lock-up represents the period from time recorded to cash collection, which has lengthened considerably at the firm since its merger.
Equity members were due to receive their payments today (Monday 31 July) under the accelerated profit distribution programme.
This quarterly payment would have represented approximately £50,000 for each plateau equity partner.
The scheme was put into place 15 months ago as a way of speeding up profit distribution. But it is also intended to act as an incentive to encourage partners to bill clients and get cash in promptly.
Chief operating officer Garth Pollard says: “We decided that there should be a system that said, ‘If you are all a bit better at this and do it quicker, you will get your cash quicker.'”
He says that current levels are considerably better than they were five years ago but concedes that they could be improved.
A source familiar with the firm’s distribution process says: “The [partner] culture is not to take billing and collection seriously.”
Fellow banking firm Allen & Overy has a lock-up time of 18 weeks whereas Freshfields is understood to have a lower time of 12.3 weeks.
Pollard says that this is symptomatic of working with the banking industry.
“A lot of banks’ bills are payable by the banks’ customers so the system is naturally a longer, drawn-out process. It inevitably introduces an inherent delay into the system,” he says.
Lock-up times are dependent on a range of factors, such as financial year ends, client preferences and partner efficiency.
Pollard says that partners will not miss out on their equity payments and that they have simply been postponed.
There is no set date for when the money will be paid. Pollard says that the message to partners is that as the “cash comes in and efficiency improves, the cash will be paid”.
The firm is looking at ways to improve the lock-up times, including the introduction of more transparent billing for clients.