Have you got successful Cash Flow Management in place?

It is pivotal to your law firm, so have you got successful Cash flow management in place?

Cash flow is at the core of every law firm, yet many firms of all sizes can struggle with cash flow management for a number of reasons. We have identified 6 top tips to improve your firm’s cash flows and set your business on the right path for positive growth.

Keep your accounting records up to date:

It may sound simple but maintaining clear and up to date records will enable an instant picture of the state of the firm’s affairs. Issues can be addressed without delay and income and expenses can be diligently tracked to see where cost savings can be made.

Maintain a simple cash flow forecast and budget:

Preparing a budget and forecast will allow your business to have a better insight into its activities. These allows you to see where costs have exceeded those expected and ensures there are sufficient cash reserves to cover future liabilities.

Save for a rainy day

Profit does not mean cash. It is important to know that the net profit line in the accounts is not the cash readily available to withdraw from the business or to use to cover liabilities. Many law firms bill on a contingent basis, and when receiving large sums of money after closing a case, it may be best to avoid the temptation to draw it all out at once, as you may not have further income for a while. Make sure you save money for a rainy day, and ensure the cash is there to be able to cover future costs.


Taxes in particular are very good at creeping up on you. As most law firms tend to be LLP’s, a good way of managing cash is to withhold the taxes from each partner and retain them in a separate reserve within the firm (at about 45%) so that personal tax liabilities can be paid when they are due. For other taxes such as VAT, putting aside 20% of all fee invoices raised is also a good way of ensuring there is sufficient cash to cover these costs.

Review your payment terms and conditions:

Efficient invoicing and payment follow up is key. Electronic invoicing allows for the fastest delivery and receipt can be tracked. Ensure your debtor ledger is regularly reviewed and any late payments chased without delay.

Payment instalment plans can be very effective as it gives your client greater flexibility to pay and you are more likely to get paid in full before the majority of work is undertaken.

Don’t rely on too much credit

Business loans and overdrafts may be a viable short-term solution for when cash flow is starting to suffer, however, this should not be seen as a long-term cash flow solution. It is best to avoid letting your company become reliant on these short-term solutions for the day to day running of your business.  

Shipleys LLP acts for a number of law firms so please get in touch if we can assist you.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to the above.  If you would like advice or further information, please speak to your usual Shipleys contact.


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