10 Best Practices to Improve Your Law Firm’s Cash Flow

7 min read

No matter how big or small your legal company is, keeping a healthy cash flow is crucial. The true picture of a law firm’s financial state is revealed by cash flow. Your business cannot thrive if you are not carefully monitoring your bottom line. Most small and medium-sized law businesses have unpaid invoices, which can ruin your law firm’s cash flow and prevent you from being able to pay your staff and bills.  

Most successful companies manage their law firm’s finances using a variety of proven practices, many of which may be put into place quite quickly. In this blog, we will outline ten distinct ways you can transform your practices in minor but meaningful ways to increase your firm’s revenue and maintain a constant and healthy cash flow. 

10 proactive steps to manage your firm’s cash flow efficiently and sufficiently

Steps being prepared for streamlining work

1. Examine your Firm’s Financial Health

Start by looking closely at the state of your law firm’s finances if you haven’t already. Making monthly and annual projections of your company’s cash flow is a good place to start. 

Learn about your fixed costs first, such as your rent and utility bills. Then include variable costs like payroll. If possible, try to negotiate lower rates with your service providers, such as your phone or internet providers, or set up a fixed payment schedule for your utilities so you can budget more effectively.

It’s essential to make an educated guess about how much client income you anticipate earning once you’ve determined your costs. This will enable you to determine if you’ve got a negative or positive law firm cash flow. Improve firm’s cash flow easily with studying cost.

2. Cash Flow Forecast 

You will be able to produce a precise cash flow estimate once you have a handle on your law firm’s current financial situation. Additionally, with the proper practice management software, you’ll be able to swiftly produce billing and trust accounting reports so you can comprehend your incoming receivables, research where you’re making and losing money and will help you achieving improved firm cash flow over time.

Counting the money

3. Avoid Billing Leakage 

Legal professionals are less likely to concentrate on maintaining accurate records of billable hours when they are busy and stressed. Billing leakage is most likely affecting you if the attorneys in your company aren’t staying on top of their timekeeping. This is especially true if you are engaged in initiatives with fixed costs. 

Project scope creep is all too common, and lawyers frequently provide services without being paid by their clients. Implement timekeeping technology that automatically records your lawyers’ time for calls, messages, emails, appointments, and other activities throughout the day to make it simpler to capture every billable minute.

4. Provide Flexible Payment Plans to Clients 

By establishing a formal payment schedule with the client, a company can prevent accumulating unpaid invoices. Instead of requiring payment in full upfront, the agreement should include installments. It should specify the due dates for payments, the accepted payment options like credit card and debit cards, and the consequences of late payments. By automating billing processes, a business can encourage on-time payments by tying them to accounts receivable.

If you’re having trouble getting your customers to pay on time, there might be friction in your law firm’s payment plans. To simplify your billing and collection procedures, set up a system that takes many payment methods, including internet payments. It’s time to start emailing bills to your clients if you haven’t already. 

Accepting credit cards will typically speed up your payment process and make it simpler to keep track of incoming funds. It may be worthwhile to pay a little convenience fee to a processor in order to get payments through the door faster.

Calculating money with the use of the calculator

5. Offer Incentives for Fast Payments

By doing this, you may maintain cash flow while enhancing customer service. Instead of charging exorbitant interest rates for late payments, incentives like rebates for early payments are more effective. 

Customers will be motivated by rewards to pay promptly and to remain devoted. Another strategy is to provide customers with extras like free webinars to make them feel special.

6. Set Aside a Cash Reserve 

In case of a financial emergency, you should have enough cash on hand to handle all expenses of your law firm.  Predict your expenses using your law firm’s cash flow analysis, and set aside enough money to cover your company’s expenses for three months. You won’t have to be concerned if you face a seasonal dip or minor setback if you do.

Successful law firms also arrange a line of credit to provide a financial buffer in the case of a shortfall. It will be available to you when and if your company needs it, and if you don’t use it, you won’t pay interest.

7. Develop Key Performance Indicators for Cashflow 

Setting reasonable KPIs will assist you in keeping your business on the right track. For instance, you may keep track of the number of days that payments are past due and see if that number decreases over time. Alternatively, you may reflect on how your working capital has changed over time, which is calculated as the ratio of your current assets to liabilities. 

Variances that could explain any deviations in your forecasts can also be considered. The opportunities are practically endless, especially if your billing or practice management platform has reporting capabilities.

8. Avoid Surprises in your Bill 

If you notice that your customer retainers are getting low, raise them before you run out to prevent spending money that won’t be refilled right away. Additionally, you should refrain from invoicing consumers unexpectedly for services they didn’t request. 

Make sure your contracts clearly state what prospective clients can expect up front. Before sending the client your invoice, prepare them with a brief call to ensure they fully understand the cost if you have an unforeseen spend or a huge bill. By doing this, you have a better chance of avoiding write-offs.

9. Negotiate with Suppliers 

Developing a relationship with suppliers will assist the business get through challenging times. The supplier may consent to grant discounts, adjustable payment schedules, or a line of credit. This will assist your law firm in maintaining a sufficient cash flow going forward.

10. Follow up on Unpaid Invoices 

Following up on outstanding invoices can be a time-consuming and difficult task. It’s natural if you’re uneasy with the idea of pursuing clients for money during a crisis. You might be concerned that your actions would adversely impact your client relationships. However, you can use this opportunity to adopt a client-centered approach by providing clear solutions that benefit both your clients and your firm. 

The first step toward optimizing your accounts receivable is to establish a clear and compelling accounts receivable management strategy. 

Send polite email reminders as soon as you can if you find yourself with past-due invoices. A phone call might be required if the reminder emails don’t appear to be effective. Legal billing software can help automate parts of the collection time and save your law firm a lot of time. 


Whilst increasing cash flow could be a difficult task, it is essential for the company’s future. The greatest approach to guarantee that the practice never runs out of money during a crisis is to utilise technology like legal billing software and work as a team. Planning consistently will guarantee that the upcoming years will be sustainable regardless of the economic fluctuations.

Most successful law firms use a cloud-based practice management software platform to streamline their accounting procedures, document management, time and expense tracking and many more which helps them increase their firm’s productivity, efficiency, and profitability.

By utilizing the correct technology, your firm can facilitate your timekeepers in saving unaccounted time that they would normally spend on administrative chores that reduced your revenue. You may analyze your historical and projected cash flow and project your company’s finances more quickly and precisely. This will help you plan more effectively and establish more achievable goals for the upcoming months and years.

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