UK’s Top 50 Law Firms Vulnerable To Economic Incidents

The UK’s top 50 law firms do not hold enough cash to cover an entire month’s wages if the sector suffered an economic setback.

According to accountancy firm Smith & Williamson and website Legal Week, on average, the top 5o law firms hold monthly cash of £410 million. However, the average monthly payroll figures exceed £610 million.

The £200 million shortfall leaves the sector vulnerable to any incident, like Brexit and a potential no-deal. Up to April 2019, 43% (£7.6 billion) of the £17.3 billion total revenue for the top 50 firms remained unpaid.

Experts have warned that an incident, like a no-deal Brexit, could lead to clients delaying their payments further which would be catastrophic for the legal sector.

Whilst the 8% increase in revenue suggests that the UK legal sector is flourishing, the fact that so much money remains outstanding and the majority of firms are unable to cover costs for a full month at the moment suggests that the sector is extremely exposed to negative economic market changes.

Increasing the buffer of available cash each month could reduce the risk slightly. In such uncertain times, this must be a priority for peace of mind.

Giles Murphy, Head of Professional Practices at Smith & Williamson, said:

“The amount of outstanding invoices is concerning.  Firms are reliant upon some of this being paid each month to enable them to pay their staff.

“This model works in predictable times, but in more uncertain times law firms need a bigger buffer to deal with volatility in the cash they receive from clients. If there’s a shock to the economic system for example, a no-deal Brexit, clients may decide to delay payments and that could be devastating to law firms.”

Will the legal sector suffer if a definitive Brexit outcome is not reached? Is the legal sector prepared for a no-deal Brexit? Should law firms be more prepared for economic uncertainty in the future?

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