Your accounts say the firm made money and your bank balance says otherwise. The gap is lockup — the fees you have earned but not yet turned into cash, sitting as unbilled work in progress and as bills nobody has paid. It is measurable, it has a price, and it is the number most firms have never worked out.
Guide · Updated August 2026
Lockup is unbilled work in progress plus outstanding bills, expressed in days of turnover. It is the length of time between doing chargeable work and having the money for it, converted into a number you can compare against yourself month after month. Every day of lockup is one day's fees standing outside the bank account.
It matters because a law firm's profit and its cash are produced by two different mechanisms. The profit and loss account recognises fee income when the work is done or billed. The bank account changes when someone pays. A firm can bill well, earn well and still run out of money, because the money is real and simply has not arrived. That is a balance sheet problem, and no amount of margin improvement fixes it.
Two ratios, both built on the same denominator.
Worked example — illustrative. A firm with fee income of £1.2 million excluding VAT, unbilled WIP of £220,000 and a sales ledger of £180,000 including VAT.
That last figure is the one to put in front of the partners. Not a ratio — a sum of money the firm has already earned and cannot spend. Our lockup calculator will do this from your own four numbers in about a minute.
Deliberately absent from this guide: any claim about what a normal or typical lockup figure is. Published averages for law firms vary so widely by work type that comparing a legal aid practice with a commercial property team tells you nothing. The only benchmark worth acting on is your own figure last quarter, and the only target worth setting is a number of days lower than that.
Take the same illustrative firm. Every day of lockup is £3,288 of cash. Take ten days out of the cycle and the firm releases £32,880 — once, permanently, without winning a single new client. On a facility costing 9% a year, carrying £370,000 of lockup costs £33,300 a year in interest, or £2,775 a month; the ten-day improvement saves about £2,959 a year on top of the cash it frees.
If the firm has no borrowing, the cost is not zero — it is the money the partners have left in the business instead of drawing, and the opportunities the firm cannot take because the cash is somewhere else. Either way, lockup is funded by someone.
WIP days are almost entirely a billing discipline problem, not a work problem.
Debtor days are a credit control problem plus one regulatory constraint that firms outside law do not have.
Money held on account for a client is client money. You cannot simply take it when you feel you have earned it. Rule 4.3 of the SRA Accounts Rules requires you to give the client a bill or other written notification of the costs incurred first, and the transfer must be for the specific sum identified in that bill and covered by the money you hold for that particular client. Rule 5.3 reinforces the point: you may only withdraw client money if you hold sufficient funds for that specific client or third party. There is no cross-funding between matters.
The practical effect is that money on account is not cash until you bill against it. A firm holding £90,000 on account across its client ledgers has £90,000 of other people's money and no income until the bills go out. Firms that raise bills weekly convert that balance in days; firms that bill monthly in arrears wait a month for money already sitting in their own client account.
The rest is ordinary credit control done unusually badly: terms not agreed at the outset, nobody owning the ledger, chasing that starts at 60 days, and disputes that arise because the bill was the first time the client saw the number. A bill that surprises the client is a debtor by design.
Every disbursement you pay on a client's behalf and have not recovered is cash you have lent, and it sits in the same place as an unpaid bill. In some practice areas — anything with court fees, search fees, experts or counsel — unrecovered disbursements are a substantial part of the total. Two disciplines fix most of it: take money on account for disbursements before you incur them, and recover them on the next bill rather than at the end of the matter. Measure them separately from fees, because they behave differently and because a rising disbursement balance is usually an early sign that matters are running longer than expected.
The two look identical from the bank statement and need opposite responses. This is how to tell them apart.
Worked example — illustrative. The same firm makes a profit of £240,000. Partners draw £260,000. Over the year, WIP and debtors rise by £60,000. Cash therefore falls by roughly £80,000 even though the firm was profitable, because £20,000 more was drawn than earned and another £60,000 went into lockup. Nothing went wrong with the margin. The firm simply financed its own growth from the current account and paid the partners as though it had not.
If the firm's profit is healthy and lockup is rising, it is a cash problem: bill faster and collect sooner. If lockup is flat and cash is still falling, it is a profit problem, and the answer is in your rates, your mix or your cost base. Work out which before changing anything, because the wrong remedy makes both worse.
In an LLP, members are taxed on their allocated profit share whether or not they draw it, with payments on account due on 31 January and 31 July. So a firm carrying high lockup faces the worst version of the problem: the profit exists on paper, the tax on it is payable in cash, and the cash is sitting in WIP and debtors. Partners then draw to fund their own tax bills, drawings exceed the cash the firm generated, and the overdraft absorbs the difference.
The discipline that breaks the cycle is unglamorous: set drawings from cash generated rather than from profit allocated, hold a tax reserve separately, and settle the balance only after the year-end figures are done. Our page on partner tax and drawings sets out how to build the reserve, and law firm accounts and tax covers how the year-end position gets built in the first place.
Lockup is the reason many firms conclude they need to incorporate — the firm cannot fund itself, so retaining profit at corporation tax rates starts to look attractive. Sometimes that is right; see LLP vs limited company for a law firm. Often the cheaper answer is 20 days off the billing cycle, which needs no filings, no PII change and no SRA approval.
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Lockup is unbilled work in progress plus outstanding bills, expressed in days of turnover. It measures the time between doing chargeable work and actually having the money for it. Every day of lockup represents one day's fees sitting outside the bank account, funded either by borrowing or by profit the partners have left in the firm. It is the clearest explanation of why a firm can be profitable and still short of cash: the profit and loss account recognises income when work is done or billed, while the bank account only moves when somebody pays. Lockup is a balance sheet problem, so improving margin does not fix it.
Start with daily turnover: annual fee income excluding VAT divided by 365. WIP days are unbilled work in progress divided by daily turnover. Debtor days are outstanding bills divided by daily turnover — but strip the VAT out of the debtor figure first, because your sales ledger includes VAT and your turnover does not. Divide a VAT-inclusive ledger balance by 1.2 before using it, otherwise you overstate debtor days by a fifth. Add the two together for lockup. On fee income of £1.2 million, daily turnover is £3,288, so £220,000 of WIP is 67 days and £150,000 of net debtors is 46 days.
Almost always because profit has gone into lockup and drawings have gone out at the same time. Take an illustrative firm that makes £240,000 of profit while the partners draw £260,000 and WIP and debtors rise by £60,000 over the year. Cash falls by around £80,000 despite a profitable year: £20,000 more was drawn than earned, and £60,000 financed the firm's own growth. Nothing went wrong with the margin. To tell a cash problem from a profit problem, look at the direction of lockup. Rising lockup with healthy profit means bill faster and collect sooner; flat lockup with falling cash points at your rates, mix or cost base.
Only after you have billed for it. Rule 4.3 of the SRA Accounts Rules requires you to give the client a bill or other written notification of the costs incurred before transferring client money to pay your costs, and the transfer must be for the specific sum identified in that bill and covered by the money you hold for that particular client. Rule 5.3 adds that you may only withdraw client money where sufficient funds are held for that specific client or third party, so there is no cross-funding between matters. The practical consequence is that money held on account is not the firm's cash until the bill goes out.
Yes. A disbursement you have paid on a client's behalf and not yet recovered is cash you have lent to the client, and it belongs in the same calculation as an unpaid bill. In practice areas involving court fees, search fees, experts or counsel it can be a substantial share of the total, and it is often invisible because nobody measures it separately from fees. Two habits fix most of it: take money on account for disbursements before incurring them, and recover them on the next bill rather than waiting for the end of the matter. A rising disbursement balance is also an early warning that matters are running longer than planned.
Bill more often, on more matters, earlier. Interim billing on long-running matters and milestone billing on fixed fees change a firm's cash profile faster than anything else, and they cost the client nothing. Then age the work in progress and force a decision on everything over 90 days: bill it, write it off, or record why neither. Finally, give one named person the sales ledger with a weekly slot, starting chases at day 14 rather than day 60. Put lockup days on the monthly management pack next to profit so the trend is visible, and review the direction of travel rather than any single month's level.
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