Introduction: The numbers look strong. So why are law firms still under pressure?
The Law Society’s 2026 Financial Benchmarking Survey revealed that firm growth is at its highest for 15 years, with 85% of law firms reporting fee income increases in the last 12 months.
Productivity has also risen, with firms recording more billable hours while reducing operational overheads.
On paper, the current financial landscape appears positive. But stronger revenue doesn’t automatically mean healthier cash flow and for many law firms, the day-to-day reality feels very different.
Cash flow pressures are continuing to intensify, as firms face demands to increase IT and cyber security spending, as well as recruit more staff. At the same time, delayed income from lock-up remains persistently high.
Although firms are billing more, the timing gap between money going out and money coming in is still making cash flow feel unpredictable.
Firms are growing in an environment where costs are accelerating faster and cash continues to arrive late. How firms approach cash flow management will impact their long-term stability. We explore what firms need to consider as they continue to grow, and how law firm finance can help reduce cash flow gaps.
Revenue growth is not the same as cash flow strength
In the legal sector, revenue is often realised months after work is completed. While the Law Society’s report found the average lock-up period is now at 134 days, down 8.2% since 2024, it still remains a major cash flow issue across the sector.
While firms may be reporting stronger income growth, they are still facing significant delays between when work is completed and income is realised.
Growth itself can intensify these pressures, particularly as increased recruitment drives higher payroll commitments and operational overheads. The median spend on support staff is currently £27k per fee earner, up 5.5% from 2024. With the National Insurance Contribution threshold also rising in 2026, the cost of growth soon stacks up.
As firms balance growth priorities with widening cash flow gaps, how can they maintain operational control without compromising long-term plans?
The cost base of modern law firms has changed significantly
As firms grow, standard operating costs are changing, with former “nice-to-haves” becoming non-negotiables for remaining competitive.
Staff and salary inflation
Legal recruitment remains challenging, as firms see a drop in legal applications by a third within a year. Retaining staff is just as difficult, with data from Chambers and Partners showing that 40% of associates in UK law firms are looking to leave the sector within 5 years.
With pressures to bring in new staff but also keep current employees, firms are having to become more competitive with their salaries to recruit and retain talent.
Technology and cyber security investment
Following events such as the Legal Aid Authority cyber attack, firms are under increasing pressure to enhance their security and data controls, with IT now accounting for 4.3% of non-salary overheads.
AI and legal technology have also moved up the priority list. LEAP’s 2026 Global Report into Profitability in Law found the UK leads in AI maturity, with nearly a third of lawyers and legal professionals using these on a daily basis.
Regulatory and compliance burden
Regulation is tightening for solicitors and law firms, as SRA compliance requirements demand more time and resources and stricter risk management. Insurance obligations are also contributing to higher overheads.
Many of these costs are now fixed, rather than discretionary investments. Even for the most profitable firms, the new baseline costs for running a firm are placing increased pressure on profitability.
Firm growth may be climbing for now, but without effective cash flow management, that performance could stagnate over time.
Why profitable firms still experience working capital pressure
There’s still a mis-match between the upfront operational costs of running a firm and delays in client income. This is apparent across law firms of all sizes.
The legal industry also faces a number of financial nuances, with solicitors and law firms having to manage:
- Monthly payroll costs
- Quarterly VAT payments
- Annual PII renewals and practising certificate fees
- Tax liabilities
- Technology subscriptions
If firms are still facing longer periods of lock-up, trying to meet these standard obligations only amplifies the strain on cash flow. A growing litigation practice may find it has increasing WIP but tighter monthly liquidity.
This strain is particularly prominent during seasonal pressure points, when tax deadlines, insurance renewals and year-end costs often collide at once.
While waiting for income to catch-up, firms are often forced to use cash reserves, reducing the working capital available for growth and wider business investments. Firms can soon become operationally “asset rich but cash poor”.
What law firms should be reviewing now
Firms are starting to look beyond the revenue coming in, and are now assessing how efficiently cash moves through the business during the financial year.
Review lock-up and debtor management
Delayed billing, inconsistent collection processes, and limited visibility over aged debtors can all create avoidable pressure on working capital.
As firms grow, maintaining discipline around matter management and billing efficiency becomes increasingly important, particularly where operational costs are rising month-on-month. Even profitable firms can experience cash flow strain if too much revenue remains tied up in WIP or unpaid invoices for extended periods.
Assess whether existing finance facilities are still fit for purpose
It is also worth reviewing whether existing finance facilities still reflect the way the firm operates today. Many law firms continue to rely on legacy overdraft arrangements that were set up years ago, often before periods of expansion, increased headcount, or significant technology investment.
While these facilities may still provide a safety net, they are not always structured around the realities of modern law firm cash flow. For growing firms, more flexible working capital support can provide greater financial visibility and operational stability as the business evolves.
Consider specialist funding for predictable outgoings
Predictable costs can still place significant pressure on cash reserves when they arrive at fixed points during the year. This is particularly true for outgoings such as PII renewals, practising certificate fees, VAT liabilities, or strategic technology investment.
Spreading these costs in a structured way can help firms maintain stronger liquidity without delaying operational or growth decisions. The key point is that finance should support forward planning and not simply be a reaction to short-term pressure. Working with a provider that specialises in professional practice finance for businesses in the legal sector, can help firms build a finance structure that adapts and fits around their unique cash flow pressure points.
Firms with stronger visibility over cash flow and access to the right financial structure are often in a better position to invest confidently, manage risk, and maintain momentum as they grow.
Strong trading should not hide structural cash flow risks
The latest Financial Benchmarking Survey indicates that the legal sector is seeing continued improvements in growth and performance. However, increased growth doesn’t always eliminate the financial pressures that come with it.
Growth can instead expose weaknesses in cash flow infrastructure, if operational demands increase faster but liquidity gaps widen. Expanding teams, higher salary commitments, rising compliance costs, and ongoing technology investment all require cash to leave the business long before revenue is fully realised.
This becomes even more important in a market where economic uncertainty remains high and operational expectations continue to rise. Firms are being asked to invest more into resilience, security, compliance, and client experience, while also protecting profitability and maintaining competitive partner drawings.
The firms best positioned for long-term growth are often those with the strongest visibility over working capital and the ability to plan ahead with confidence. That creates greater flexibility to invest strategically, recruit at the right time, respond to changing market conditions, and avoid short-term financial decisions that can disrupt momentum.
In summary: how Shire Professions Finance supports growth for law firms
For firms looking to grow, now is a sensible time to assess whether existing financial structures still support the way the business operates, and where greater flexibility or visibility may be needed.
Shire Professions Finance works closely with UK law firms to provide tailored funding solutions designed around the realities of legal sector cash flow, including working capital support, PII and practising certificate funding, and finance for operational or growth investment.
To learn more, explore our law firm finance solutions, or speak to the team about the funding options available to your practice.