Tuesday 21 August 2012 by Gazette reporter

Cashflow problems are worsening for law firms, according to results from the Law Society's Law Management Section (LMS) financial benchmarking quarterly.

The survey, to be published tomorrow, found that 40% of firms were experiencing more cashflow pressures than in the previous quarter.

Firms' responses to increased pressures varied considerably. One in eight of the firms surveyed had introduced new capital to ease cashflow and a similar percentage have restricted partner drawings. A third of practices reported operating within 25% of their overdraft limit, while one in six were operating within 10% of their overdraft limit on a regular basis.

Of the 51 participating firms, one-third of practices said they were considering a merger with another practice. While fee income was down compared to the previous quarter, it was slightly up on the same quarter last year.

Law Society President Lucy Scott-Moncrieff said: 'In a climate where access to funds from the banks or elsewhere is limited, legal practices are going to have to look at other ways to make savings and release cash.

'The full survey reveals what areas of the business firms have made changes to in order to ensure cashflow. The underlying message is that effective and business management is essential, especially at a time like this. That might seem obvious, but achieving it can be anything but; the Law Management Section helps firms identify the best way to manage those costs.'

This was the first quarterly LMS Financial Benchmarking Survey, and from this year is open to all legal practices to participate in. Participating firms receive the full report. The annual survey, which has been running for 12 years, has historically been open to LMS members only.

The report, produced in association with accountants Hazelwoods LLP, is sponsored by Lloyds TSB.