Poor financial management hits law firms in the pocket

Delayed cash collection and insufficient credit checks are continuing to blight UK law firms, according to research by PricewaterhouseCoopers (PwC).

The accountancy firm’s annual “Financial Management in Law Firms” survey reveals that 84 per cent of respondents, that included 47 of the top 100 UK firms, are taking on average 60 days to collect fees.

Moreover the average fee collection for the 17 law firms classified as being from the top 25 practices in the UK was taking an average 76 days. However while collection continued to be a problem, PwC found a slight improvement in billing processes, though many still suffered from what the research called a “year-end billing bulge”.

In 2003, 36 per cent of the top 100 firms billed one third of their 2003 fees in the last three months of their financial year, compared to 45 per cent of firms in 2002.

Last year The Lawyer 100 survey of law firm finances included the first in-depth and attributed analysis of financial management issues. It revealed that only a handful of top 100 firms, including CMS Cameron McKenna, Lovells and Nicholson Graham & Jones, had less than 60 debtor days on average.

The industry benchmark for lock-up (the combination of work in progress and debtor days) is 150 days.

In terms of credit checks, 43 per cent of the top 25 firms questioned do not routinely conduct a credit review before accepting an engagement