Cash flow crisis bearing down on troubled law firms

Dwindling cash flow is a practice headache reaching crisis proportions for many UK law firms, results from the latest management research in the sector shows.
More of a trickle than a flow

More of a trickle than a flow

Financial benchmarking quarterly figures from the Law Management Section (LMS) of the Law Society of England and Wales have revealed that 40 per cent of law firms are experiencing increased cash flow problems. Fee income has also fallen compared with the previous quarter, although it is higher than this time last year, reports the Law Gazette.

Overdraft limits

Law firms are being driven to drastic measures to handle cash flow issues, with a third of the surveyed practices operating within 25 per cent of their overdraft limit, and a sixth regularly within 10 per cent of their limit. One in three law firms is reported to be considering a merger, and one in eight has introduced new capital, or restricted partner drawings.
Law Society President Lucy Scott-Moncrieff said the results highlighted the need for ‘effective and business management’ as ‘legal practices are going to have to look at other ways to make savings and release cash’.

Seizing client assets

Across the pond, law firms are also looking to new ways of increasing cash flow, with on-line blogging web site Chicago Now detailing how lawyers can go about seizing assets to settle client debts.
In a climate where clients have capital but minimal cash, it is recommended that law firms include asset seizure conditions in engagement contracts, and, where appropriate, to litigate to reclaim their unpaid fees.

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