How Can Solicitors Improve Cash Flow Without Breaching SRA Rules

At Towerstone Accountants we provide specialist accountancy services for solicitors and law firms operating under SRA regulation. This article has been written to explain How can solicitors improve cash flow without breaching SRA rules in clear practical terms so you understand how the rules apply in day to day practice. Our aim is to help you stay compliant protect client money and make informed financial decisions.

Cash flow is one of the most persistent challenges I see in legal practices of all sizes. Even profitable firms with strong client demand can find themselves under pressure simply because money does not arrive at the right time. The frustration for many solicitors is that improving cash flow feels constrained by regulation particularly when client money is involved.

I am often asked whether the SRA rules make it harder to run a financially healthy firm. In my experience the opposite is true. The rules are designed to protect clients but they also push firms towards better financial discipline. When approached properly cash flow can be improved significantly without cutting corners or risking compliance.

In this article I will explain how solicitors can strengthen cash flow while remaining fully compliant with SRA requirements. I will focus on practical strategies that work in real firms drawing on UK guidance and everyday advisory experience.

Why cash flow is such a challenge in legal practices

Law firms face unique cash flow pressures compared to many other businesses.

These include:

• Long gaps between work being done and bills being paid
• Work in progress that cannot always be billed immediately
• Client expectations around payment timing
• VAT liabilities arising before cash is received
• Restrictions on how and when client money can be used

Many solicitors work incredibly hard yet feel constantly behind financially. This is rarely due to lack of profit. It is usually due to timing and systems.

Improving cash flow starts with understanding where delays arise and which actions are permitted under the rules.

The SRA perspective on money and financial management

The Solicitors Regulation Authority expects firms to manage money responsibly transparently and in the best interests of clients.

The SRA Accounts Rules focus on:

• Proper handling of client money
• Clear separation of client and office funds
• Accurate record keeping
• Prompt correction of errors

What the rules do not do is prevent firms from charging appropriately billing efficiently or collecting money promptly. Many cash flow problems arise from overly cautious behaviour rather than regulatory necessity.

Understanding what the rules actually say rather than what people assume they say is key.

Client money rules and common misconceptions

One of the biggest myths is that solicitors cannot touch money until a matter is fully completed. This is not true.

Client money can often be transferred to office account for costs when those costs have been properly incurred and billed.

Common misunderstandings include:

• Believing all client money must stay untouched until the end
• Delaying billing longer than required
• Failing to distinguish between disbursements and fees
• Avoiding interim billing unnecessarily

These misconceptions lead to avoidable cash flow strain.

Interim billing is one of the most effective tools

Interim billing is entirely compatible with SRA rules when done properly and is one of the strongest ways to improve cash flow.

Benefits include:

• Reduced work in progress
• More predictable income
• Lower risk of non payment
• Better client communication

Clients are often more comfortable paying smaller regular bills than one large invoice at the end.

From a compliance perspective the key is that bills must be accurate clearly explained and issued promptly.

Using money on account correctly

Money on account is a powerful but often underused cash flow tool.

When clients pay money on account:

• Funds are held in the client account
• They can be transferred to office account once costs are billed
• They reduce reliance on borrowing or overdrafts

Problems arise when firms either do not request money on account or do not bill against it regularly.

Good practice involves:

• Agreeing upfront payments at engagement
• Explaining how funds will be used
• Billing regularly to justify transfers

This improves cash flow while staying squarely within the rules.

Faster billing improves cash flow without risk

Delays in billing are one of the biggest self inflicted cash flow problems.

Common causes include:

• Fee earners delaying time recording
• Draft bills sitting unapproved
• Unclear responsibility for billing
• Over complex internal processes

None of these are required by the SRA.

Improving billing speed does not mean rushing or cutting corners. It means tightening processes so work done is billed promptly and accurately.

Time recording discipline matters more than rates

Accurate and timely time recording underpins cash flow.

Without it firms struggle to:

• Bill promptly
• Justify costs
• Forecast income
• Defend bills if challenged

Encouraging consistent time recording supports both cash flow and compliance. It also makes interim billing far easier to manage.

Credit control can be compliant and firm

Many solicitors are uncomfortable chasing clients for payment. This is understandable but damaging.

There is nothing in SRA rules that prevents firms from operating robust credit control provided it is fair and professional.

Effective approaches include:

• Clear payment terms in engagement letters
• Early reminders before invoices fall due
• Personal follow ups rather than automated emails
• Escalation processes when accounts age

Good credit control is not aggressive. It is clear consistent and respectful.

Managing VAT without damaging cash flow

VAT often creates unexpected cash flow pressure because it is due to HMRC regardless of whether the client has paid.

Accountants help firms manage this by:

• Aligning billing cycles with VAT quarters
• Considering cash accounting where appropriate
• Forecasting VAT liabilities in advance
• Ensuring correct VAT treatment of disbursements

These steps are fully compliant and can significantly smooth cash flow.

Lock up is the hidden cash flow killer

Lock up refers to the time between work being done and cash being received.

It includes:

• Work in progress
• Debtors
• Unbilled disbursements

Reducing lock up frees cash without increasing fees or breaching rules.

Strategies include:

• More frequent billing
• Faster approval processes
• Clear ownership of aged WIP
• Regular debtor reviews

Firms that focus on lock up often see rapid improvement.

Pricing clarity improves payment speed

Unclear pricing leads to delayed payment disputes and write offs.

Improving cash flow starts at the beginning of the client relationship.

Good pricing practices include:

• Clear scope of work
• Transparent fee structures
• Regular updates if costs change
• Written confirmation of billing stages

This reduces friction and speeds up collection.

Client account reconciliations protect cash flow

Regular reconciliations are not just a compliance task. They highlight issues early.

Benefits include:

• Identifying unbilled balances
• Spotting residual client funds
• Correcting errors promptly
• Avoiding regulatory breaches

Accountants often uncover trapped cash simply by reviewing client ledgers.

Residual balances should not be ignored

Small residual balances build up over time and represent money sitting idle.

Properly dealt with they can:

• Be returned to clients
• Be transferred when justified
• Reduce administrative burden

Ignoring them creates compliance risk and obscures the true cash position.

Partner drawings need to reflect cash reality

One of the fastest ways to damage cash flow is allowing drawings to run ahead of receipts.

Partners should understand:

• Drawings are not guaranteed income
• Cash availability matters
• Tax liabilities must be considered

Accountants help align drawings with cash flow rather than paper profits.

Cash flow forecasting is essential not optional

Cash flow forecasting allows firms to plan rather than react.

It helps with:

• Anticipating pressure points
• Timing tax and VAT payments
• Managing drawings sensibly
• Deciding when to invest or hold back

Forecasting does not need to be complex to be effective.

Banking facilities should support not mask problems

Overdrafts and loans can help but should not be relied on to cover structural issues.

Accountants help firms:

• Assess true funding needs
• Negotiate appropriate facilities
• Avoid dependency on short term borrowing

Healthy cash flow should come primarily from operations not finance.

Technology can unlock cash flow

Modern practice management systems can dramatically improve cash flow when used properly.

Benefits include:

• Automated billing triggers
• Real time WIP reporting
• Integrated credit control
• Clear matter level profitability

Technology only helps if processes are followed consistently.

Culture and leadership matter

Cash flow improvement is not just technical. It is cultural.

Leadership must support:

• Timely billing
• Honest conversations about money
• Accountability for WIP and debtors

When partners lead by example cash flow improves naturally.

What happens when firms push too far

Improving cash flow must never involve:

• Using client money improperly
• Delaying transfers without billing
• Masking financial problems
• Ignoring breaches

These actions almost always lead to regulatory trouble.

The goal is discipline not shortcuts.

My professional view

In my experience cash flow problems in law firms are rarely caused by the SRA rules. They are caused by weak systems hesitation around billing and lack of financial visibility.

The rules actually support good cash management when understood properly. Firms that embrace them often run more smoothly and profitably.

With the right advice and processes solicitors can improve cash flow significantly while remaining fully compliant and confident.

Final thoughts

Cash flow is the lifeblood of a legal practice but it does not have to come at the expense of compliance.

By billing promptly using money on account correctly managing WIP and maintaining strong financial controls solicitors can strengthen cash flow without risking regulatory breaches.

The firms that succeed are not those that bend the rules but those that understand them and build better systems around them.

You may also find our guidance on How can an accountant help with law firm budgeting and forecasting and How can accountants help reduce a law firm’s tax bill useful when reviewing related SRA and accounting obligations. For a broader overview of solicitor accounting and compliance topics you can visit our solicitors accounts rules hub which brings all related guidance together.