From a funding perspective, our survey highlights that external funding remains readily available to law firms. Access to increased debt facility levels is being secured with little if any additional cost. We are also seeing increased levels of investment from both full equity and fixed share partners, the latter reflecting the impact of HMRC’s salaried member regime.
The funding mix has not changed significantly for Top 50 firms and, with an increase in direct external funding for Top 51-100 firms (17% to 25%), that banding is now the most dependent on direct external finance.
Banks continue to support the legal sector, with additional borrowing readily available on similar or more favourable terms for larger firms in particular. 86% of Top 10 firms reported facility renegotiations and 50% report no increases in facility fees.
Increases have been seen across the board in full equity partner capital and current account balances with, in particular, the Top 10 banding increasing by an average of £31k and Top 51-100 by an average of £60k per full equity partner.
The Top 25 bandings increased lock-up for the second consecutive year. Top 10 increased from 120 to 124 days and Top 11-25 from 132 to 133 days (or 108 to 111 excluding high volume firms). In contrast, the Top 26-50 reduced lockup by 6 days (124 to 118 days) and the Top 51-100 reduced lock-up by 12 days (149 to 137 days).
Firms improving their ‘matter-to-cash’ cycle can generate significant additional cash (e.g. £5.6m for an average Top 11-25 firm by achieving first quartile performance). Further cash flow benefits would be realised by firms improving year round billing and cash collection disciplines, as the gap between average and year-end lock-up remains significant.
International lock-up days, whilst still tracking behind UK performance, have improved across the Top 50 banding. The Top 10 banding reduced year end lock-up from 159 to 148 days, Top 11-25 from 194 to 163 days and Top 26-50 from 168 to 139 days.