134 Days to Cash: How Law Firms Can Reduce Lock-Up and Improve Cash Flow

A law firm can be profitable on paper and still face pressure on its available cash. With industry benchmarking putting typical lock-up at more than four months, understanding how quickly work becomes cash is essential to protecting profitability, meeting financial commitments and funding future growth.

For law firms, financial health is about more than the fees recorded on the accounts. It is also about how quickly those fees are billed, collected and made available to run the business.

The Law Society's 2026 Financial Benchmarking Survey reported median year-end lock-up of 134 days among participating firms in England and Wales, excluding unbilled disbursements. A separate NatWest legal-sector report published in September 2026 found median lock-up had increased to 136 days in its survey sample.

Although the surveys use different samples and reporting periods, both highlight an important issue for law firm leaders: the time between carrying out legal work and receiving payment can have a significant impact on working capital.

When cash is tied up in unbilled work or unpaid invoices, firms may have to manage salaries, VAT, Corporation Tax, professional indemnity insurance (PII), practising certificate fees and other commitments before the corresponding income reaches their bank account.

Understanding lock-up, identifying where delays occur and putting the right controls in place can help firms improve cash flow without unnecessarily restricting growth.

What Is Lock-Up in a Law Firm?

Lock-up is the time between undertaking legal work and receiving payment for it. It is commonly measured in days and generally consists of two main components: work in progress (WIP) and debtor days.

Together, these figures show how long a firm's income remains tied up before it becomes cash.

1. Work in Progress (WIP)

Work in progress represents the value of legal work that has been carried out but has not yet been billed to the client.

For example, a solicitor may spend several weeks advising a client, preparing documents, negotiating an agreement or progressing a transaction. The firm records the time spent and the value of the work, but until an invoice is raised, that value has not become a billed debt.

The delay between completing work and issuing an invoice can be caused by several factors:

• Fee earners not recording time promptly.

• Matter files not being reviewed regularly.

• Billing being postponed until a transaction reaches a particular milestone.

• Partners needing to approve invoices but not having a consistent review process.

• Unclear responsibility for billing decisions.

• Work exceeding the original scope without an agreed approach to additional fees.

Some WIP is an unavoidable part of legal practice. The problem arises when work remains unbilled for longer than necessary or when the firm lacks visibility over the reasons for the delay.

The key question is not simply how much WIP the firm has, but how much of it could reasonably be converted into billed income sooner.

2. Debtor Days

Debtor days measure how long clients take to pay after an invoice has been issued.

Once a bill has been raised, the firm has recorded a debt, but it still needs to collect the money.

Delays may arise because of:

• Clients paying after the agreed payment date.

• Invoices being disputed or queried.

• Bills containing errors that need correcting.

• Credit control being inconsistent.

• Payment terms not being communicated clearly.

• Fee earners avoiding difficult conversations about overdue balances.

• Large invoices being issued without adequate warning or payment planning.

Even where the work has been completed and invoiced correctly, slow collection can leave the firm financing its own operating costs while waiting for payment.

This is why billing and credit control should not be treated as separate administrative tasks. They are central to the firm's financial performance.

3. Why the Distinction Matters

A firm can have a lock-up problem because work is not being billed quickly enough, because invoices are not being paid on time, or because both issues are occurring together.

Each situation requires a different response.

If WIP is high, the priority may be better time recording, matter reviews and billing discipline.

If debtor days are high, the firm may need stronger credit control, clearer payment arrangements and more active management of overdue invoices.

If both are high, simply increasing sales or taking on more work may make the problem worse.

Before deciding whether external finance is needed, firms should understand precisely where cash is getting stuck.

Why Cash Flow Can Become a Problem Even When a Law Firm Is Profitable

Profitability and cash flow are closely connected, but they are not the same thing.

A firm may have completed substantial work, recorded healthy fee income and forecast a profitable year. Yet if invoices remain unissued or clients have not paid, the cash needed to meet immediate commitments may not be available.

This distinction becomes particularly important when a firm has significant fixed costs or predictable financial obligations.

The Cost of Waiting for Payment

Consider a hypothetical firm generating £3 million in annual fees.

For a simple illustration, divide that annual fee income by 365 days:

£3,000,000 ÷ 365 = approximately £8,219 per day.

At that level of annual fee income, 15 days represents approximately £123,288 of fee income.

This does not mean that £123,288 would automatically become available cash if the firm reduced lock-up by 15 days. The actual impact depends on the firm's billing arrangements, recoverability, collection rates, VAT treatment, disbursements and other factors.

However, it demonstrates why seemingly small improvements in billing and collection can make a material difference to a firm's liquidity.

If a firm can consistently convert completed work into collected cash sooner, it may reduce the amount of working capital required to support day-to-day operations.

Financial Commitments Do Not Wait for Clients to Pay

Law firms have ongoing costs regardless of whether clients have settled their invoices.

These may include:

• Salaries, employer costs and partner drawings.

• Office rent, utilities and technology.

• Professional indemnity insurance premiums.

• Solicitors' practising certificate fees and other regulatory costs.

• VAT and Corporation Tax liabilities.

• Supplier invoices and professional fees.

• Recruitment, training and business development expenditure.

The timing of these payments may not align with the timing of client receipts.

For example, a firm may have a substantial VAT payment due while a number of large invoices remain unpaid. The firm could have enough expected income to cover the liability, but not enough available cash on the payment date.

This is a timing problem rather than necessarily a profitability problem. Nevertheless, if it is not anticipated and managed properly, it can create unnecessary pressure on the business.

Growth Can Increase the Pressure

Growing firms are particularly exposed to cash-flow timing issues.

Taking on additional work can increase WIP before the associated fees are billed and collected. Recruiting new solicitors introduces salary costs before their work necessarily generates sufficient collected income. Opening a new office or investing in technology can require significant expenditure before the expected benefits materialise.

Growth therefore needs to be assessed in terms of both profitability and cash requirements.

A firm that understands its lock-up position can make more informed decisions about recruitment, investment and expansion, rather than relying solely on projected fee income.

Five Ways Law Firms Can Reduce Lock-Up

Reducing lock-up does not necessarily require a major restructuring of the business. Often, consistent improvements to billing, matter management and financial reporting can produce meaningful results.

1. Review WIP Regularly, Not Just at Month-End

WIP should be actively managed throughout the month rather than reviewed only when financial reports are prepared.

Partners and practice managers should have visibility of:

• The value of unbilled work by matter and fee earner.

• How long the work has remained unbilled.

• Whether the work is ready to be invoiced.

• Any outstanding decisions or approvals preventing billing.

• Matters where the recorded value is approaching agreed fee limits.

• Work that may be difficult to recover from the client.

A regular review helps identify issues while there is still time to address them.

For example, if a matter has accumulated significant WIP but the client has not received an update on fees, the firm can address the position before the balance becomes more difficult to explain or collect.

The aim is not to bill prematurely or compromise client service. It is to ensure that completed work is billed at the appropriate time and that any genuine barriers are addressed promptly.

2. Make Time Recording a Daily Habit

Delayed time recording can make it harder to understand the true value of work undertaken and can create additional delays when invoices are prepared.

Fee earners should record their time promptly and accurately, with clear descriptions that support billing and explain the work completed.

This is particularly important where the firm charges by the hour, but it also matters for fixed-fee and other pricing arrangements. Accurate time records help the firm understand the cost of delivering work, identify scope changes and assess whether matters are commercially sustainable.

Management should monitor missing time and unusual recording patterns rather than relying entirely on individual fee earners to identify problems themselves.

Where a matter is approaching its agreed fee limit, the firm should have a clear process for discussing additional work and obtaining any necessary client agreement.

3. Introduce Clear Billing Milestones

Waiting until the very end of a matter to issue an invoice can create a long gap between carrying out work and receiving payment.

Where appropriate to the retainer, client agreement and nature of the work, firms should consider whether billing milestones, interim invoices or staged payments would improve cash flow.

The approach will differ by practice area. A conveyancing transaction, a litigation matter and a long-term commercial retainer may all require different arrangements.

The underlying principle is to establish a clear billing plan at the start of the matter.

That plan should identify when invoices are expected, who is responsible for approving them and what needs to happen before they can be issued.

Where the scope of work changes, the firm should address the financial implications with the client rather than allowing additional work to accumulate without a clear billing arrangement.

4. Give Every Overdue Invoice an Owner

Credit control is more effective when responsibility is clear.

If an invoice is overdue, someone should know why it has not been paid, what action has already been taken and what needs to happen next.

A structured process might include:

• Confirming that the invoice has reached the correct person.

• Checking whether the client has raised a genuine query.

• Agreeing a realistic payment date where appropriate.

• Escalating significant or persistently overdue balances.

• Recording the outcome of each contact.

• Reviewing aged debt with the responsible partner or fee earner.

The firm's approach should remain professional and proportionate. Maintaining a good client relationship matters, but avoiding a payment conversation indefinitely does not benefit either party.

Firms should also review whether recurring payment delays are concentrated among particular clients, matter types or billing arrangements. Identifying patterns makes it easier to address the underlying cause.

5. Monitor Lock-Up as a Management Measure

Lock-up should be more than a number appearing in the year-end accounts.

A regular financial dashboard can help partners understand whether the position is improving or deteriorating and where action is required.

Useful measures include:

• Total WIP and the age of unbilled balances.

• Total debtors and the value of overdue invoices.

• WIP days and debtor days, shown separately.

• Total lock-up days.

• Billing and collection performance against target.

• Write-offs and unrecovered work.

• Cash-flow forecasts and expected major payments.

The firm should agree who reviews these measures, how frequently they are reviewed and what triggers further action.

Monthly reporting may be appropriate for many firms, while firms experiencing significant pressure may need more frequent monitoring of cash, overdue debt and major upcoming liabilities.

The objective is to identify developing problems early enough to make informed decisions.

What If Your Firm Has Already Improved Its Billing and Collection Processes?

Better financial discipline should be the starting point, but it does not eliminate every cash-flow challenge.

Some law firms operate in practice areas where work naturally takes time to complete. Others have substantial invoices tied to transaction milestones or depend on payments that can be delayed for reasons outside their immediate control.

A firm may have good billing and credit-control procedures and still experience a temporary gap between its outgoing payments and incoming receipts.

The important distinction is whether the firm has an underlying operational problem, a temporary timing issue or a longer-term requirement for working capital.

Build a Forward-Looking Cash-Flow Forecast

A cash-flow forecast should look beyond the current bank balance.

It should consider expected client receipts, the reliability of those receipts, regular operating expenditure and the timing of major liabilities.

For a law firm, that may include:

• Expected collections from significant outstanding invoices.

• The likely timing of WIP conversion into billed income.

• Payroll and partner drawings.

• VAT and Corporation Tax payment dates.

• PII and practising certificate costs.

• Recruitment, technology and other planned investment.

• Any anticipated partner capital repayments or acquisition expenditure.

Where a major receipt is uncertain, it is sensible to model alternative scenarios rather than assume it will arrive on the expected date.

A forecast can reveal that the firm has sufficient income over the coming months but may experience a shortfall at a particular point in the year.

That gives the firm time to consider its options before the payment becomes urgent.

Establish a Minimum Working-Capital Reserve

Each firm should understand the level of available cash it needs to operate comfortably.

The appropriate reserve will depend on the firm's size, practice areas, cost structure, payment patterns and exposure to unexpected expenditure.

There is no universal reserve that will suit every law firm.

However, agreeing a minimum operating reserve gives partners a clearer basis for deciding whether surplus cash can be used for investment, whether expenditure should be phased and whether external funding may be appropriate.

It also helps prevent a firm from committing cash to one objective without considering other obligations falling due shortly afterwards.

When Should a Law Firm Consider WIP, Debtor or Working-Capital Finance?

If a firm has identified a genuine funding requirement, external finance may help bridge the gap between outgoing payments and incoming receipts.

However, different facilities serve different purposes. Understanding the distinction is important before approaching a lender.

WIP Finance

WIP finance may be relevant to firms with eligible unbilled work and a funding need arising from the time required to complete, bill and collect that work.

The availability and structure of any facility will depend on the lender's criteria, the nature and quality of the WIP, the firm's financial position and the proposed terms.

It is important not to assume that all unbilled work can be used to support borrowing. The amount and type of work that a lender is prepared to consider will depend on its assessment.

Debtor Finance

Debtor finance may be worth exploring where a firm has eligible billed receivables but clients are taking time to pay.

Depending on the facility, finance may provide access to funds against qualifying invoices before the client settles them.

Firms should understand the associated fees, repayment arrangements, eligibility criteria and any recourse or security requirements before proceeding.

They should also consider whether the underlying collection problem needs to be addressed, particularly if overdue invoices are becoming a recurring feature of the business.

Working-Capital Finance

A working-capital facility may be appropriate where a firm needs funding to manage a temporary cash-flow gap or support its day-to-day operations.

For example, a firm may need to meet payroll, pay a tax liability or cover essential expenditure while waiting for expected client receipts.

The suitability of a facility will depend on the nature of the shortfall, the firm's ability to repay and the terms available.

Finance should support a sustainable financial plan, not simply postpone a problem that the business cannot afford to resolve.

Choosing the Right Option

Before arranging finance, firms should consider:

• What has caused the cash-flow gap?

• Is it temporary, seasonal or recurring?

• When are the expected receipts likely to arrive?

• How much funding is actually required?

• What will the facility cost in total?

• Can the firm meet the repayments if receipts are delayed?

• Would changes to billing, collection or expenditure reduce the need to borrow?

A lender with experience in the legal sector should understand that a firm's funding requirement may be shaped by its matter lifecycle, regulatory commitments, partner structure and annual financial calendar.

That context matters when assessing the right approach.

How Key Business Professions Supports UK Law Firms

Key Business Professions specialises in funding solutions for the UK legal sector.

We understand that law firms must balance the cost of delivering legal services with the timing of client receipts, recurring regulatory obligations and the need to maintain sufficient working capital.

Whether a firm is managing a temporary cash-flow gap, preparing for a major tax liability or considering investment in its future, understanding the financial position is the first step towards making a sound decision.

Depending on the firm's circumstances and eligibility, funding options may include WIP and debtor finance, working-capital facilities, VAT and tax funding, PII premium funding, practising certificate funding, partner-exit finance and acquisition or growth funding.

The appropriate solution will depend on the firm's requirements, financial position and the terms available.

The aim is not simply to provide finance. It is to help law firms understand their funding requirements and consider suitable options with a clear view of the costs, commitments and implications.

Take Control of Your Firm's Cash Flow

Reducing lock-up can improve the way a law firm manages its available cash, but it requires consistent attention to the entire process, from recording time and billing work to collecting invoices and forecasting future commitments.

The Law Society's 134-day benchmark provides a useful reference point, not a target that every firm should automatically adopt. The right objective is to understand your own firm's position, identify avoidable delays and make improvements that are appropriate to your practice.

For some firms, better billing and collection processes will release valuable cash. For others, a combination of improved financial controls and suitable external funding may provide a more sustainable way to manage the timing of major commitments.

If your firm is looking to improve cash flow or explore funding options, speak to Key Business Professions. Our team understands the financial pressures facing legal practices and can discuss the options that may be appropriate for your firm's circumstances.

All finance is subject to eligibility, credit assessment where applicable, and the relevant terms and conditions. Funding is not suitable for every business or every financial situation.