Clients are taking longer to pay their bills, leading to an increase in law firm debt, while the move to flexible working has prompted a rise in borrowing, research by accountants and business advisers Lubbock Fine has shown
Total debt among the UK’s top 50 law firms hit £5.4bn, up by £177m on the past year, according to Lubbock Fine’s analysis of annual reports filed in the year to end of November 2023. The research also showed the average lock-up time—the time between work done and payment received—for top 100 UK law firms reached 124 days last year, up from 122 days in the previous year.
Mark Turner, partner at Lubbock Fine, said: ‘The economic turmoil of recent years is being reflected in clients taking longer to pay their lawyers.
‘Managing down lock-up days is a core focus for law firm management at present—it’s a problem that always rears its head during an economic slowdown. It also has knock-on effects that need to be managed. For example, banks are often less keen to extend overdrafts to firms struggling with debts older than 90 days.’
Turner said the increase in office moves to smaller premises due to flexible working also created costs as firms fitted out their new offices and paid rent on both their old and new premises during the overlap period. He said some firms have increased their short-term borrowing to cover these costs.
Despite the current economic slowdown, however, total revenues for the UK legal industry rose by 1.8% in February to £3.88bn, according to Office of National Statistics data released last week.
Julie Norris, partner at Kingsley Napley, said: ‘Although revenues aren’t back to December 2023 levels, the rise on January figures is a move in the right direction and is in contrast to the 5.3% drop we saw for the same month in 2023.’
