Week 3 of lockdown: Dark clouds of cash flow gather

McCrum: Month-end crunch time

Week three of lockdown saw the start of a cash squeeze on law firms, with no money yet from the government, and predictions of a grim summer, according to research.

While many firms are “living off their ‘fat’ at the moment” after a decent March, the end of April should show how the crisis is really starting to bite.

Law firm consultant Simon McCrum is conducting a weekly snap poll of firms to track how they are coping with the crisis – 16 firms, from small to large, took part last week. You can read our stories from the first two here and here.

While those first two weeks were “quite benign in business performance terms”, as much of March was pre-lockdown, Mr McCrum said “we are beginning to see the first signs of cash-induced winds and the waters are getting choppier”.

April’s month-end billing figures would probably bring the storm: “I say ‘storm’ because it is clear that the three key inputs that drive month-end billing – namely file-opening numbers, lawyer numbers and chargeable hour numbers – are mostly down. There will be a price to pay.”

The solicitor said this was against the background of slower cash collection. “And still no money has come in from any of the government schemes. None.”

Mr McCrum explained: “Not surprisingly, therefore, firms are looking further ahead and are constantly assessing where they are and what is coming next.

“Long-sighted firms have already mapped out that the summer months, just as we are hopefully coming out of the lockdown, will be the worst.”

This is because furloughing will have finished but firms will not yet have generated new work to produce the cash to pay staff.

Unsurprisingly, those firms with strong private client practices are reporting that billable hours are on the rise, in contrast to residential property departments, where instructions have tumbled even though firms are working on getting existing files at least ready for exchange.

One firm grimly noted an increase in privately paying domestic violence injunctions.

Several were looking at further furloughing in the coming weeks as across the board firms reported a fall in file openings.

Firms were also busy counteracting this by deferring outgoings. One firm said: “We have done a wide range of things from smoothing rent from quarterly to monthly, taking advantage of Time To Pay and deferring capital repayments at the top end of the scale, right down to little things like decommissioning the coffee machines, pausing car parking contract spaces, reducing the cleaning contract as the building is empty, cancelling DX subscription, and negotiating a reduction in case management licence costs.”

To help law firms understand the Covid-19 crisis and its impacts, and to help them to respond, Mr McCrum is posting regular briefings on his website, giving out relevant parts of his forthcoming book, The Perfect Legal Business. You can also watch insight from him on coping with the crisis on a Law Society video published last week.

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