Top 50 UK law firms now wait over six months to get paid

This is an increase on the 182 days recorded in the previous year and 173 days in the year before that.

• Law firms urged to improve cashflow issues as major tax change puts huge costs on law firm partners
• Small law firms may face insolvency if they can’t solve cash flow issue

Lubbock Fine says that the cashflow for the UK’s 50 largest law firms has worsened as clients fall behind on the payment of their legal fees. 

Anthor more plausible factor could be down to the fact that Law Firms are making ever larger profits and clients are disputing the bills or delaying payment as a way of squeezing the firms to reduce their rates.

These “debtor days” track the amount of time it takes a firm to be paid for completed work. A lower number of days indicates a business has a healthier cash flow and more efficient credit controls.

Mark Turner, head of professional services at Lubbock Fine, says that a weaker economy is encouraging clients to sit on invoices from their suppliers, including lawyers, for longer. Higher interest rates give an added incentive to pay bills late and keep that cash in the bank.

Law firms typically wait longer than other businesses to get paid. The average number of days UK businesses wait to be paid is 80, less than half the current number of days for the Top 50 law firms.** Ineffective credit controls in the legal sector is a key driver for the increase in payment days by law firms. Fee earners at law firms have also been historically reluctant to chase clients for payments.

Mark Turner says record high debtor days for law firms means they have weaker cash reserves than they should have, which could cause them a problem if there is a sudden shock in their business.

Says Mark Turner “For larger firms, this cash flow problem may slow growth plans. But for smaller firms with less cash in the bank, delays in payment can lead to significant financial stress. For some, it may even lead to insolvency.”

What hits to cashflow lay ahead for law firms?

Cash flow, and indeed profitability, for law firms will be further hit by an increase in employer’s National Insurance contributions in April 2025.

This is in addition to the added cost pressures put on law firms’ cashflow where they haven’t historically been using a tax year end to 31 March, which means they have just had to settle much bigger tax bills this year, including the first of the five annual payments arising from the basis period reform.

Research from Lubbock Fine reveals that 375 of the UK’s 500 biggest law firms were using a date other than March 31 as their accounting year end.