Smaller firms 'have highest lock-up days'

Smaller firms have the highest number of lock-up days, a report by accountants Crowe Clarke Whitehill (CCW) has found.

The finding is in marked contrast to a report by accountants MHA published earlier this week, which said the best performers in terms of lock-up, a combination of unbilled work in progress and unpaid debtors, were sole practitioners, with 62 days.

According to the CCW report for 2013, based on a sample of 43 small and medium-sized firms, firms with turnovers of less than £5m had an average of 164 lock-up days.

Those with turnovers of between £5m and £10m recorded an average of 144 days, while those with fee incomes about £100m recorded an average of 130 days.

"The number of lock up days is troubling, especially in a challenging market where we are seeing many firms struggling to access finance", Nigel Bostock, managing partner of CCW's London office, said.

"The smaller firms that we surveyed reported the highest lock up days, reflecting a need for a shake-up in working capital management at this end of the market.

"Cash is king, and the ability to convert work in progress into fees and collect promptly has significant benefits for a firm."

Around 60 per cent of firms in the CCW report said their fee income had grown in 2013, but the majority achieved an increase of less than 5 per cent.

The number of firms reporting a decline in turnover grew from 25 per cent in 2012 to 37 per cent in 2013.

"One of the most interesting aspects of the 2013 results is the lack of identifiable trends in profitability, demonstrating the diversity within the legal services market," the report said.

"What is clear from our involvement in the sector is the sense that 'everyone is working harder' to maintain profitability.

"While not traditionally price-sensitive, there is emerging client price awareness in the legal sector which is not limited to high street law.

"There is a growing level of fixed-price commercial work and this will surely increase fee pressure in the market."