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How good are you at collecting debts?

I have a friend with a small solicitors practice.  It is the principal plus three other solicitors.  There are three other admin type staff.  So four fee earners. 

There is difficulty with cash flow and she has asked that I come and have a look at her accounts and debtors.

For this size of practice, what would you say would be an acceptable number of days in debtors? ie Total debtors (say at year end) divided by rough daily turnover.

Would appreciate anyones comments.


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09th Nov 2011 21:18

For this type of business i'd look at the way that they structure their billing, is it monthly, on completion, staged or other?

Would also look at the WIP to get total exposure not just aged debts. Also look at volume of WIP written off.

Debtor days I would say should be around 45 but will depend on billing process.  Also lots of law firms tolerate slow payers as they are too afraid to chase their clients hard enough or to get the right collection system in place. 

For the reason above, can be very hard to change Partners mindets when it comes to credit management and you will need their buy in to change things for the better.

Look at their largest most regular clients first, see how they are paying and tighten up those that need it. 


Seahorse (UK) Ltd - For Accountants and Bookkeepers




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By Hal
10th Nov 2011 09:29

What type of legal work do they do?

If they do public funded work [was legal aid] then they will be affected by the payment runs of the Legal Services Commission.

For private clients do they check any outstanding debt levels for that client before agreeing to act on another matter.

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10th Nov 2011 09:43

Thanks for these comments they are very useful.

The clients get billed at the end of the month, so there should be very little WIP.  No legal aid work. 

My own view is that it is the other members of staff who are not chasing up fees well enough.  My friend is very aware of cash flow as it is their own money.

It is interesting what Jason says about 45 days.  I have just looked at the accounts of a direct competitor and their days in debtors was about 38 days for the last two years.  There were no other members of staff in that practice other than the principal and I think employees are less vigourous about fee chasing than owners.  So Jason is probably spot on.

This is not my area at all so I am just going in as a friend to try to help a little to identify how she can improve cash flow.

Any other ideas would be greatly appreciated.

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10th Nov 2011 13:24

45 days is too much

Some matters will be settled immediatly the bill is raised, where the solicitor is already in funds - for example conveyencing.

This should bring the average down to well under 45 days.

Also I would be surprised if WIP is billed EVERY month. For example probate cases can costs £1000s and last many months - are you suggestingthe client gets a bill every month the file is worked on ?

In my opinion unbilled WIP is always a fertile area to look at in legal practices.

More solicitors are also now asking for sums of say, £500, on account of costs before proceeding. This will go to client account and be transfered when the bill is raised. However if interim bills are not done, monies will remain on client account, and although it wont be reflected in debtors it will be unbilled WIP.


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10th Nov 2011 14:55

She tells me that bills go out every month.  I will have a look when I go to see her.  I think she probably does this, but I think it is the staff who do not.  She asks for £500 up front.  Apart from that she would not be in funds.  There is no conveyancing work done.

From speaking to her a few days ago, I think she needs to give the staff a talking to because she says one of the fee earners has nearly £50k in outstanding fees!

Thanks so much for your thoughts.

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10th Nov 2011 17:02

Getting the Debts Down

Anything is possible if you have the backing of the principal. You could look at payment terms and reducing those for new clients, and renegotiating those of existing clients.

For example, the firm could have terms of 7 days from date of invoice, and then chase hard from 15th of the month after that.

Accountants have the same reputation as the legal profession in chasing for money, but my terms are 7 days and I always get my money before the 30 days are up. That's because I'm clear about terms and when I expect to be paid. I will always take legal action if I don't get paid.

I agree with others' remarks about billing WIP. I would never have a lot of this outstanding before sending another bill.

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10th Nov 2011 19:16

45 days less than industry average?

Zara I disagree that 45 days is too high for a law firm, it will very much depend on what type of law they practice, litigation and banking are going to be high whereas conveyancing low. Commercial work very much depends on type of work and what type of agreement is in place at the outset and for insurance work its a case of how long is a piece of string! - the key for law firms to get their lock up low is getting the policy in place at client inception, billing monthly, payment on receipt of invoice, retainer arrangements with six monthy balance ups, and a firmwide culture of importance on collections every bit as much as billing.

The trouble with many law firms is too much emphasis on billing and not enough on collection.

Correct me if I am wrong, I may well be, but isn't the industry average for law firms between 60 and 90?


Seahorse (UK) Ltd - For Accountants and Bookkeepers

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