Debt Recovery and Cash Flow Management

Debt Recovery and Cash Flow Management

As well as winning new business, cash flow should be the top priority for solicitors. Effective cash flow management is the foundation of any successful practice. As they say, “cash is king” and never has this been more relevant than in today’s volatile economic climate.

By managing your cash resources and collecting unpaid debts, your practice will be able to run efficiently, and you will be prepared for any worst-case scenarios.

Here are a few important areas to consider:

Cash flow forecast – this should include any predicted peaks and troughs, and any major outgoings, such as VAT quarter-ends, payroll and Partner income/Corporation tax payments. The forecast should be prepared at least one year ahead to counter any potential cash issues. We advise adding cash flow management as an agenda item for every senior management meeting, and best practice daily bank balance updates should be sent to senior managers.

Debtors ledger – look for any debts that are old and where the client is still active. Sometimes, a quick conversation with your client might resolve a debt issue. Your fee earners are best placed to liaise with clients when it comes to recovering debts, so ask them to review the debtors’ ledger on a regular basis. 

If the debt is of a small value and you are no longer in contact with the client, consider whether it’s worth the time and costs trying to recover the outstanding amount.

Debtors days – this is the average number of days it takes for a client to pay a bill. Improving this figure should be a top priority for solicitors, as this will help you manage your cash flow and reduce the number of bad debts. 

Payments on account – you may have a client that generates a large amount of income for your firm, but they are slow payers. In this instance, you could suggest a monthly standing order, which would help you manage your cash flow and cover fees.

Payment terms and disbursements – by encouraging your fee earners to agree sensible payment terms before work begins, you will reduce the risk of bad debts. You could also ask your clients to pay upfront to cover any disbursements, which will help to alleviate any bank account pressures. Another consideration could be to allow direct debits or credit card payments to help stabilise your cash flow.

Debt recovery and credit control – always use a credit checking process before you take on a new client. When it comes to debt recovery, allocate this to either a Legal Cashier or a Practice Manager. For older debts, we suggest setting aside one day per month for sending statements and chasing clients by email and telephone – do not rely on postal communication as this is not wholly reliable and can cause needless delays. We recommend making some provision for bad debts in your management accounts; any potential impact on cash flow should be included in your financial forecast.


If you would like advice on debt recovery and cash flow management, then please get in touch by emailing: solicitors@charnwoodaccountants.co.uk