Recent research indicates that Law firms may be waiting more than three months on average to be paid for their services – far longer than most other businesses. The average period between a bill being issued and payment being received is 94 days for solicitors firms (based on an analysis of 321 firms) and there is a risk that this long delay is likely to put firms under intense financial pressure.
By contrast, figures from the European Payment Index* give the average payment duration in the UK in 2013 as 41 days for transactions coming both from businesses and the public sector.
This far exceeds the rules implemented last year under the EU’s late payments directive, which sets a 60 day time limit for payments from businesses and 30 days for public authorities, after which interest and recovery costs can be charged**.
LDF’s MD Peter Alderson, says: “SMEs are generally seen as being the ones who get the thin end of the wedge from late payments but these figures show that, as an industry sector, law firms are getting a really raw deal.”
Smaller firms are likely to be particularly badly affected as they are more likely to have greater numbers of private individual clients which may require a disproportionately high level of internal resources to chase up if necessary.
Peter adds “One of the biggest risks is that when major tax bills or professional indemnity insurance premiums fall due, they could face a shortfall if incoming payments aren’t settled in good time. It also makes business investment very difficult to plan for.”
“With bank lending still in short supply, more and more law firms are investigating what finance options are available to them to help them pro-actively manage their cashflow and provide a buffer against late payments.”
LDF provides finance solutions designed to assist law firms cover the costs of tax and VAT bills, insurance premiums, and unpaid invoices, as well as acquisitions or investment such as equipment purchases or refurbishment.
* The European Payment Index is published by Intrum Justitia. It was started at the request of the European Commission in 1998.
**Unless expressly agreed otherwise.