Newly released analysis from chartered accountants and business advisers Hazlewoods has revealed that average law firm bank debts have spiked 36 per cent in the last twelve months, rising from £28,000 to £38,000 average debt per equity partner. Similarly, non-bank debt has also skyrocketed upwards from £10,000 per equity partner to £17,000 over the same period. Mounting workloads at UK law firms are putting upwards pressure on headcounts and lawyer salaries and prompting management to reconsider investments that may have been delayed for several years, such as IT upgrades or refurbishment plans, argues Hazlewoods. Simultaneously, busy firms with a growing amount of cash tied up in unpaid billing and work in progress are turning to borrowing to help bridge the gap, with the average lockup period for completed work at law firms currently sitting at around 140 days.  

‘Victim of its own success’

According to Hazlewoods legal team partner Jon Cartwright, the escalating debt figures reflect growing confidence across the sector and a new willingness to take on debt to help invest in growth. ‘Bank debt is being driven up in part by the legal sector being a victim of its own success – workloads and billing are both on the rise, and firms are ploughing that back into their practices,’ he said.

Overdraft conversions

Banks looking to ‘de-risk’ their balance sheets and speed up repayments by converting overdrafts of small and medium enterprises into term loans is another parallel factor driving up law firm debt levels, says Mr Cartwright. ‘As incomes rise in the sector, banks have seen an opportunity to get repayments started on some of this unsecured debt, and reduce their exposure to a sector that some of them still regard as being higher risk,’ he added.