Top law firms face a £5.4bn debt burden due to slow payments and office transitions

According to chartered accountants and business advisors Lubbock Fine, the total debt of the Top 50 law firms has surged to £5.4bn, marking a notable £177m increase over the past year.

Mark Turner, Partner in the professional services team at Lubbock Fine, highlights the growing concern of 'lock-up' days, which refers to the duration between work completion and payment receipt. Recent research by Lubbock Fine indicates that the average lock-up time for the top 100 law firms in the UK has risen to 124 days, up from 122 days in the previous year. Turner emphasis that prolonged lock-up periods compel law firms to borrow more to maintain financial stability, especially concerning partner remuneration and investment in expansion initiatives.

Moreover, Turner identifies another contributing factor to the surge in law firm borrowing—the trend of office relocations, driven by the shift towards flexible working arrangements. While transitioning to smaller premises offers long-term financial benefits, it entails short-term costs such as fitting out new offices and overlapping rent payments for both old and new spaces. Consequently, many firms have resorted to increased short-term borrowing to alleviate these financial pressures.

Despite the challenges posed by mounting debt, Turner notes that some firms perceive opportunities for growth, leading to an increase in acquisitions and further contributing to the uptick in borrowing. However, managing debt levels remains a critical focus for law firm management, particularly amidst economic uncertainties and evolving workspace dynamics.

As law firms continue to navigate the complexities of the current economic landscape, effective debt management strategies and prudent financial planning will be imperative to ensure long-term sustainability and resilience in the face of ongoing challenges.