As the financial year draws to a close, leadership teams across the legal sector are poring over the same reports: WIP, lock-up, debtor days, write-offs, aged debt.
The conversations are familiar.
- Why is lock-up still so high?
- Why are we writing off so much time?
- Why does it take so long to get paid?
- Why aren’t fee-earners more engaged in collections?
But here’s the uncomfortable truth: for many firms, this isn’t a billing problem. It’s a systems and intelligence problem. And to fix it, you need to leverage a people, process and technology framework to think about how you turn this position around. The firms that will outperform next year are already analysing their approach through this lens.
Revenue Means Nothing Without Cash
Law firms are exceptional at generating revenue on paper. They are far less disciplined at converting it into cash. Most firms are facing similar challenges with invoices sitting unpaid, finance teams chasing things manually, and of course the reluctant Partners who don’t want to “damage the relationship”. The reality is that whilst payment terms quietly get stretched, write-offs erode margins, and partner attitudes remain unchanged, firms are struggling more than ever to manage cash flow.
Modern firms are recognising a simple commercial reality: cash is king. Not revenue. Not matter count. Plain, hard cash.
This is the single biggest challenge for law firms thinking about how they grow successfully. Most just don’t have the cash to invest in building out teams, investing in marketing and brand or other strategies that could grow the number of clients at the firm. It’s why there’s been such an increase in firms seeking external PE investment: they need actual capital to be able to unlock growth levers for the business.
The strongest firms are entering the new financial year with a clear objective: shorten the path from work done to cash received. Leadership understand that cash in the bank is what frees up the firm to go after and win more new clients.
The Engagement Problem Is Cultural But It’s Also Structural
It’s easy to blame fee-earners for poor billing discipline or lack of engagement in chasing payment. But most lawyers are not trained to manage credit risk or debtor recovery. In fact, most have never received any training on this topic. And they rarely have the tools or visibility to do it effectively.
If a partner can’t easily see the following types of data, then every commercial decision is being made in isolation:
- A client’s payment history across matters
- Whether they consistently pay late
- Whether they have prior CCJs
This isn’t a people problem. This is a data problem. Law firms don’t have the ability to connect commercial risk data (e.g. information about consistent late payers) with compliance data (e.g. whether someone is a high-risk client commercially because they have prior CCJs). The upshot is that there’s no rich picture of the client that enables leadership teams to make informed decisions.
Modern firms are solving this by creating a consolidated view of the client. This is done by combining compliance data, payment history, and commercial risk signals into a single intelligence layer. When you connect the dots, behaviour changes. When you have rich client intelligence, you can leverage that data to achieve the cash flow wins needed to take your business to the next phase.
Using Client Intelligence to Make Better Commercial Decisions
The most forward-thinking firms are no longer treating client onboarding, AML, billing and collections as separate processes.
They are asking smarter questions at the outset:
- Should we act for this client?
- Should we take a higher sum on account?
- Should we risk-adjust payment terms?
- Should we request staged payments?
For example:
- If an individual client has multiple CCJs, it may be prudent to take a larger amount on account.
- If a corporate client has a history of slow payment across matters, restructuring their payment schedule early protects cash flow.
- If a client repeatedly causes write-offs, pricing and engagement terms need revisiting.
Without structured client intelligence, these insights are anecdotal. With it, they become strategic. The firms gaining an edge are using client lifecycle management systems to inform these decisions proactively. These systems also provide the end-client workflows that enable these experiences to be improved for the client, achieving the outcomes that the firm is looking for, like getting invoices paid much faster.
The Payments Experience Is a Growth Lever (Not an Admin Detail)
Another uncomfortable reality: many law firms still make it actively difficult for clients to pay.
This looks like a combination of manual bank transfers with details sent to clients in the post, or clunky portals that look like they were built in the 1990s. There’s no flexibility around payment options, no opportunity for the client to pay in a click using a digital wallet. Firms are still asking clients to scramble around to find specific client reference or matter reference information to include with every transfer.
In almost every other industry, payment friction has been engineered out. Open banking, Apple Pay, instant card payments: the expectation is simplicity and speed. Covid accelerated this shift, and client expectations have permanently changed. It’s now estimated that fewer than 50% of UK adults carry a wallet. Digital wallets on mobile phones and watches are the new norm.
For individual clients and SMEs especially, giving flexible digital payment routes is not a luxury. It’s a cash acceleration strategy.
Modern firms are recognising that improving the client payment experience directly reduces debtor days. When payment is easy, cash arrives faster.
And when payments, compliance, and client data sit within one connected system, finance teams can move from reactive chasing to intelligent collections.
Equipping Finance Teams With the Right Tools
Many finance teams are still operating with spreadsheets, siloed systems, and fragmented data. This makes effective collections incredibly difficult. It also makes it very difficult to measure success e.g. how fast does a client or a cohort of clients pay an invoice.
The next generation of firms are consolidating technology:
- Integrating onboarding, AML and payments
- Removing re-keying of data
- Creating live visibility over client risk and payment behaviour
- Automating reminders and structured follow-ups
Equipping finance teams with the proper tooling to send fast payment requests, to set up payment plans, to link commercial and compliance data, and more, gives them the opportunity to really measure the success of their initiatives to improve cash and collections.
When finance teams can see risk signals early and act with structured workflows,
recovery rates improve.
From Compliance Function to Commercial Engine
Historically, AML and client due diligence have been treated as regulatory necessities. In more firms these are viewed as cost centres to manage risk. Most of the time the actual onboarding costs are passed on to the client, but the overall cost of these processes is viewed as a drain on the business, rather than an opportunity to build up a rich picture of client data.
There’s a clear opportunity to turn client intelligence into a commercial advantage, to get cash in the door much faster, and use that improved position to deploy resources effectively to grow the business or drive greater efficiencies.
When you understand both the compliance risk and the commercial behaviour of your clients:
- You protect margin.
- You price more intelligently.
- You take money on account strategically.
- You reduce bad debt.
- You accelerate cash flow.
The shift from fragmented processes to intelligent lifecycle management is where firms are gaining a competitive edge.
The Firms That Win Next Year Will Be the Ones That Connect the Dots
As leaders set priorities for the year ahead, the focus should not just be on growing revenue.
It should be on:
- Reducing lock-up
- Shortening billing cycles
- Improving payment experience
- Making smarter client acceptance decisions
- Turning data into commercial foresight
Building, winning, retaining and growing your client base, the firm’s biggest asset, is where firms want to be able to invest capital. In order to truly thrive and grow, firms need to be ahead of the pack when it comes to cash and collections. These processes need to be efficient, predictable and managed using technology that achieves ancillary goals like measuring success of initiatives and building up a clear picture of the firm’s clients.
Financial year end isn’t just a reporting milestone. It’s a strategic reset and an opportunity for modern law firm leaders to reconsider whether they’re managing matters or managing clients. Because the firms that actually understand their clients, both financially, commercially and from an overall risk standpoint, are geared up to create more resilient businesses, in a time where there are lots of headwinds for law firms.
Guest Blog by Lauren Watson, VP Growth at Legl.
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