Lock-up is fixed in billing habits, not chasing: how to measure it and reduce it

What lock-up is

Lock-up is the time between doing the work and having the cash in the bank. It has two parts:

• WIP days: how long work sits recorded but unbilled.
• Debtor days: how long bills sit sent but unpaid.

Lock-up days are WIP days plus debtor days. It matters because the firm pays salaries, rent and suppliers every month whether or not clients have paid, and the gap is usually funded by partners’ capital or an overdraft. Every day of lock-up removed is roughly one day’s fees back in the bank, without winning a new client.

How it is calculated

The simple method uses yearly figures:

• WIP days = unbilled WIP ÷ fees billed in the last 12 months × 365.
• Debtor days = debtors ÷ billings in the last 12 months × 365.

Take a firm that billed £2.4 million in fees in the last year. It has £600,000 of WIP, of which it expects to bill 85%, and £480,000 of debtors including VAT. Its WIP days are £510,000 ÷ £2.4 million × 365, or 78 days. Its debtor days are £480,000 ÷ £2.88 million (the year’s billings including VAT) × 365, or 61 days. Its lock-up is 139 days: on average, more than four and a half months between doing the work and being paid for it.

The count-back method is more accurate. Take the WIP or debtor balance and work backwards through the most recent months of fees until the balance is used up; the number of days that takes is the result. It handles seasonal billing and growth better than a yearly average. A big billing run at the year end, for example, will not flatter or distort it. Most good practice management reports offer it.

Whichever method you use, use the same one every month. The trend tells you far more than a single figure.

What distorts the figure

Lock-up is only as good as what is in the system. Check these before you report it:

• Like for like on VAT. Debtors normally include VAT and fees normally do not. Either include VAT on both sides or remove it from both.
• The value of WIP. If WIP is held at full charge-out rates but fees are what you actually billed after write-offs, WIP days will look worse than they really are. Value WIP at what you expect to bill.
• Time not yet recorded. Work that is not on the system is invisible, so late time recording makes WIP days look better than they are, while the real problem grows.
• Old WIP that will never be billed. Until it is reviewed and written off, it sits in the figure and hides the matters that need attention.
• Disbursements and money on account. Decide whether unbilled disbursements are in or out, and treat them the same way on both sides. Showing lock-up with and without money on account is legitimate, as long as you say which you are reporting.
• Fixed-fee matters. Is the WIP the time recorded or the value of the stage reached? Agree one rule and apply it everywhere.

What reduces it most

AT A GLANCE

Six habits that reduce lock-up

The first three shorten the wait before a bill goes out, the next two the wait for payment, and the last keeps both in view.

• Bill in stages

  Interim bills monthly or at agreed milestones, and fixed fees by stage.

  Fewer WIP days

• Money on account

  Ask at the start and top it up at each stage.

  Cash before the work

• Approve fast

  A turnaround target and approval workflow for draft bills.

  No bills waiting for sign-off

• Make paying easy

  Clear terms, electronic bills and a payment link on every bill.

  Fewer reasons to delay

• Chase by process

  Automatic reminders at set intervals, then credit control.

  Nobody has to feel awkward

• Report weekly

  Aged WIP and aged debt by fee earner and team.

  Behaviour that changes

In most firms we have worked with, WIP is the larger share of lock-up. That is why the biggest gains usually come from billing earlier, not from chasing harder.

1. Bill in stages, not at the end. On longer matters, send interim bills monthly or at agreed milestones, and bill fixed-fee work by stage. Agree it in the client care letter so clients expect it. For most firms this is the single biggest lever.

2. Take money on account, and top it up. Money received before the work is done removes lock-up on that part entirely. It is client money until you bill, so hold it in client account and transfer it only after you have sent a bill or other written notification of costs, as the SRA Accounts Rules require.

3. Clear the bill approval bottleneck. Draft bills often wait days for partner sign-off. Set a turnaround target, use the approval workflow in your practice management system, and show who is holding which draft bill.

4. Make paying easy. Put clear terms and a secure payment link on every bill and every reminder, and send bills electronically. Removing the effort of paying removes the most common reason for delay.

5. Make credit control a process, not a favour. Many fee earners are uncomfortable chasing their own clients. Send reminders automatically at set intervals, and pass named accounts to credit control at an agreed age, with the fee earner told rather than asked.

6. Report it by fee earner and team, every week. Aged WIP and aged debt (0 to 30, 31 to 60, 61 to 90 and over 90 days), with lock-up days as a team measure alongside billing. What partners see every week changes behaviour faster than any policy.

Two habits support all six. Record time as the work happens, so WIP is visible and bills are accurate and less often disputed; our time leakage calculator puts a figure on it. And review old WIP every month, so the figure stays honest.

Start this week

Run your aged WIP and aged debt reports and sort them by fee earner. In most firms, a small number of matters and people account for most of the lock-up, and a conversation about ten matters does more than a new policy for all of them. Then work out your lock-up the same way every month and share it with the teams.

Our free lock-up calculator works out your WIP days, debtor days and the cash tied up, using either method, and ranks the habits above by how much difference they would make to your firm. Nothing you enter leaves your browser.

Most of what is needed is already in your practice management system: interim billing, approval workflow, payment links, automated reminders and aged reports. It is one of the quickest ways to get more from the system you already have.

We help firms set up billing and credit control in the systems they already use, agree the habits that go with them, and report lock-up so the improvement lasts.

If you think anything here is out of date, please tell us and we will correct it.