Understanding Your Numbers: A Guide for Law Firms

Billed Time and Collected Cash Are Two Different Things

A law firm can record excellent billable hours and still struggle with cash flow, because recording time is only the first step. WIP, lock-up days, and realisation rate together reveal whether that recorded time is actually turning into cash in the bank.

Lock-Up Days

Lock-up combines work in progress not yet billed with debtors not yet collected, expressed as a number of days. High lock-up days mean cash is tied up in work the firm has already done but hasn't been paid for, a firm can be busy and profitable on paper while genuinely short on cash.

Realisation Rate

Realisation rate is the percentage of recorded time that actually becomes billed and collected revenue, after any write-offs or discounts. A significant gap between time recorded and revenue realised points to a pricing problem, a billing process problem, or both.

Why WIP Figures Are Often Wrong

WIP is only as accurate as the time recording underneath it. Inconsistent time entry, vague narrative-only billing, or delayed entry all distort the WIP figure, which means partners may be making decisions based on numbers that don't reflect reality.

Trust Accounting Sits Apart, But Affects the Picture

Trust money is kept entirely separate from operating accounts and doesn't appear in revenue, but poor reconciliation between trust and billing can mask underlying problems, for example, fees drawn from trust without a matching invoice issued.