In 2023, clients paid rates for legal work that were 6% higher than the year before, a recent report by Thomas Reuters reveals. Yet, despite this rise, law firms also reported clients were less likely to actually pay their invoices on time. On top of that, clients are increasingly moving to cheaper firms. With this economic uncertainty only set to continue, it’s never been more important to get your financials in order. By learning how to overcome common law firm financial challenges, you can successfully continue to serve clients, attract and retain top talent, and ultimately keep your firm profitable in the long run.
Table of Contents
Irregular Cash Flow
An inconsistent cash flow — which either means cash isn’t flowing in on a regular basis, or you’re spending more money than you have — is typically results in problems like cash shortages, late payments, and inability to invest in future growth. Late client payments are one of the main causes of irregular cash flow. In the U.S. almost 40% of all invoices are paid late, which is a problem when you have your own payments to make. But, as incorrect invoices are the reason for over 60% of late payments, you can up the likelihood of clients paying on time by simply making your invoices accurate. So check all the details are correct. Clearly itemize each invoice by date and task, so your client knows exactly what they’re paying for.
Incomplete and Disorganized Payroll
Whether it’s miscalculating pay, not tracking overtime, or late payments, payroll challenges remain a big problem for law firms. As lawyers have differing work hours, salary structures, and deductions, there’s a lot to stay on top of and payroll mistakes can and do happen. Shockingly, 54% of American workers say they’ve experienced payroll problems, whereas almost 50% also say they begin looking for a new job after experiencing only two problems with their paycheck at their current job. Fortunately, payroll at law firms can be streamlined and made accurate with accounting software. Packed with features like automated tax filing, time tracking, and compensation and expense management, accounting software means employees will always be paid correctly and on time.
Inaccurate Forecasting Reports
Forecasting helps you predict and manage future profit and expenses, so you can make informed financial decisions that benefit your firm. But that’s easier said than done. As legal work is unpredictable, it’s not so easy to predict what the future holds — especially when you’re busy with your other priorities at the same time. Ideally, in order to generate realistic forecasts, it’s best to work with an accountant. An experienced accountant can take into account your past and current work, as well as industry predictions, to create an accurate financial forecast. With this report, you can take steps to improve your cash flow, save money where needed, and smart investments that lead to long-term growth.
Looking after your firm’s financial health is essential to its long-term success. By solving common financial challenges, you can continue to keep your clients happy and make your own payments on time.
