Last week I posted an approach to improving law firm lockup, using a Lean process improvement methodology
I thought it worth highlighting the importance of incentives
One of the reasons that lockup is a perennial problem for law firms is a lack of incentives to tackle it
UK law firm partners are still typically incentivised on fee income (be that originations, or personal billings) rather than on cash collected
Sure, if lockup is particularly poor, those partners are subject to a capital call, but the responsibility here is typically diffused across the partnership, rather a strong incentive on individual partners
Contrast this with the consulting law firm model, where fees payable to the fee earner are typically on receipt of cash, not on raising of the bill. Here there is a clear incentive for the partner to robustly chase down payment from the client (otherwise they don't get paid!)
As a rough and ready example on this point...
Keystone Law had 2024 revenue of £88m, net debtors of £10m (and debtor days of 41), WIP of £12m (WIP days of 50)
But set against this are trade payables of £9m (37 days) and accrued expenses offsetting the WIP of another £9m (37 days)
So compared to a Top 100 law firm lockup of ~145 days, Keystone's is ~17 days, or a little over 10% of that broader average
Now the work performed by Keystone lawyers is similar to a lot of the work performed in the Top 100 firms, and the clients are also similar
At the risk of oversimplifying - the biggest difference is the incentive model on the individual fee earners
Get those incentives right on lockup and you get everyone pulling in the same direction
I wouldn't go so far as to say that changing partner remuneration is easier than a big process improvement project 🙂
But it's certainly a case of picking your poison!
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