Law firm cash flow: Mitigating financial issues

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Cash flow is one of the most important elements to the success and survival of any business. As many law firms face financial difficulties due to law reforms, the pandemic, and the current economic state of the country, it is now more important than ever to take control of your law firms financial health to ensure your firm stays afloat and continues to generate profit.

There are many ways in which you can improve your law firm’s cash flow, including some of the methods listed below.


Understand your firm’s data


If you are unaware of the financial state of your company, how can you do anything to mitigate future cash flow problems? Having control of, and understanding your financial data will allow you to create forecasts and projections on your future cash flow. This data can be used to create reports and key decisions can be made based on the data within these reports.

Key performance indicators (KPIs) are usually included within law firm financial reports. Some of the main KPIs which are reported on include:

  • Monthly billed revenue
  • Monthly revenue collected
  • The firm’s debts including overdue invoices, unpaid invoices, credit cards and loans
  • Financial projections based on previous months
  • Anticipated annual costs and outgoings
  • Operating account balance
  • Outstanding accounts receivable
  • Age of accounts receivable
  • Difference between projected annual revenue and anticipated costs
  • Net income as a percentage of revenue
  • Amount of cash tied up in unpaid bills and WIP


Having a good understanding of company finances allows management to focus on weak areas and to improve upon the same. It may also identify areas where funds are being essentially wasted, so decisions can be made on reducing costs in specific areas.


Have good costing systems in place


 Legal costs should be considered from the outset of any case to help limit expenses and maximise profits following the settlement of a claim.Firms should take caution in ensuring retainers are properly drafted and success fees are calculated in a compliant manner with a bespoke risk assessment. They should also ensure that hourly rates are appropriate depending on the complexities and value of each case.

Using an experienced Costs Draftsman to assist you in drafting your Precedent HBill of Costs and Replies to Points of Dispute will significantly assist your firm in recovering the maximum amount of legal costs and disbursements.  

The unsuccessful conclusion of a case is an inevitability for all law firms. Such an outcome would mean that the losing party is required to pay the winning party’s legal costs. Effective negotiation of the winning party’s Costs Budget and Bill of Costs will significantly assist in limiting your outgoings following a failed case, and ensuring adequate ATE protection in place is also imperative.


IT process improvement


Making use of legal technology will help with your law firm cash flow as it will improve the efficiency of your staff and mitigate the amount of time spent on tedious, manual tasks. Improved IT processes will also improve your client relationships meaning you are likely to obtain more clients through referrals.

Most case management systems can be optimised to allow for process automationMI report creation, integration with other IT systems, workflow optimisation, and bulk data solutions.

Furthermore, some legal billing and invoicing software can improve your firm’s credit control processes and can send invoices and reminders to encourage third parties and clients to pay their invoices on time.

Using a cloud based case management system will allow your staff to have the ability to work from home. If you have a large amount of your workforce working remotely, you could downsize your offices, freeing up large amounts of cash that would have otherwise been spent on rent and electricity etc each month.


How can LPS assist?


Legal Practice Support understand the importance of law firm cash flow. We provide a range of services to all types of legal professionals to help their firms become more efficient and more profitable. As well as helping you to understand your data through KPI and MI reports, we can also help you improve your processes using technology and effective legal costs drafting and negotiation.

If you would like to speak to an expert about how our team can help your firm maximise profits, we can be contacted via e-mail at, or get in touch with us via Live Chat or the contact form, below.


Satisfied client stories

"Since we first began utilising the services of Legal Practice Support, we have seen a dramatic improvement in the capabilities of our Proclaim system. The system has seen substantial enhancements with regards to automation; tasks that previously could take staff hours, can now be completed within minutes."

Mark Brierley

Director, Beacon Law

"Prior to their (Legal Practice Support) involvement, we had little to no reporting; and what we did have was generally manually accumulated data on spreadsheets. Since Legal Practice Support began enhancing our system, they have enabled us to receive key management information as and when required, which allows us to evaluate key areas of the business, as well as provide overviews of fee earners' case progression and their performance amongst other things."

Mr L Ali

Director, Hunter Price Khan

" We have had the out of the box Proclaim system for many years, and whilst we were content with its performance, it wasn't until we utilised the services of Legal Practice Support to help streamline and automate our workflows that we really saw its potential to save time and money by maximising the efficiency of our workflows."


Yasar Ali

Clarity Solicitors

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