Lock-Up in Law Firms – Why It Matters for Funding
Lock-up is the total number of days of equivalent income tied up in unbilled WIP and billed but unpaid debtors. A firm billing £6m per year with £1.8m tied up has approximately 110 lock-up days. Every lock-up day represents income earned – in the sense that work is done – but not yet converted to cash.
Why It Creates Pressure
PII renewal falls due before completions arrive. VAT creates a concentrated payment. A partner wants to retire. Each requires cash at a time when the firm’s income exists on paper but not in the account. This is the structural problem that WIP funding and disbursement funding address.
What Lenders Look For
- Whether the lock-up is stable or increasing over time.
- WIP conversion reliability – how consistently does unbilled work become invoiced income?
- Debtor ageing and recovery rates.
- Whether the lock-up profile can be explained by practice area – conveyancing, litigation, and commercial work all carry different lock-up characteristics.
PII and Lock-Up – A Difficult Combination
A structured PII facility – spread over 12, 18, or 24 months aligned to the policy term – removes the collision between insurance renewal and peak lock-up entirely. The insurance is in place, the regulatory deadline is met, and the firm’s liquidity is not strained.
