How Can Solicitors Improve Cash Flow Without Breaching SRA Rules

Good cash flow is vital for any law firm’s stability. It ensures you can pay staff, meet tax obligations, and invest in growth. Yet, the SRA Accounts Rules impose strict requirements on managing client and office money. Mixing funds or using client money to cover short-term shortages is prohibited and can lead to serious disciplinary action.

The key to improving cash flow is to focus on operational efficiency, better billing practices, and proactive financial management — all while keeping client money separate and secure.

Understanding the SRA Accounts Rules

The SRA Accounts Rules require law firms to:

Keep client money and office money in separate accounts.

Transfer only earned fees from client accounts to the office account once the bill has been issued.

Return client money promptly when the work is complete or no longer needed.

Maintain clear accounting records and perform regular reconciliations.

Any attempt to use client funds to manage cash flow breaches these rules and could lead to SRA sanctions, fines, or referral to the Solicitors Disciplinary Tribunal.

1. Improve billing efficiency

Slow or inconsistent billing is one of the main causes of cash flow problems for solicitors. You can improve cash flow without breaching SRA rules by:

Billing regularly: Issue interim or monthly invoices instead of waiting until a case concludes. This ensures fees are moved from client to office accounts sooner.

Using staged billing: Agree milestones with clients (for example, at the end of each phase of litigation or transaction) and bill at each stage.

Clear fee agreements: Make sure clients understand when they will be billed and the consequences of late payment.

Interim billing is fully compliant with the SRA rules because it reflects work already completed and billed, meaning you can legitimately transfer earned funds from client accounts.

2. Tighten credit control

Implementing a structured credit control process can help keep cash flow stable:

Follow up promptly on overdue invoices: Send reminders as soon as payment terms expire.

Offer multiple payment methods: Allow clients to pay online, by card, or via payment portals to reduce friction.

Set clear payment terms: Shorter payment terms (for example, 14 days) can encourage quicker settlement.

While pursuing late payments, always ensure communication remains professional and consistent with the SRA’s ethical obligations to treat clients fairly.

3. Manage retainers and advance payments correctly

Advance payments from clients can improve cash flow, but they must be handled in line with the SRA Accounts Rules.

If you take money from clients on account of costs, it must remain in the client account until you issue an invoice. Once the invoice is sent, you can transfer the funds to the office account as earned fees.

Avoid transferring any funds before the bill is raised. Doing so would constitute misuse of client money and breach SRA regulations.

Example

A solicitor receives £5,000 from a client to cover future legal work. The funds must stay in the client account until the solicitor issues an invoice for completed work. Only then can the corresponding portion be moved to the office account.

4. Introduce fixed fees or upfront billing models

Fixed or upfront billing models can help law firms forecast income more accurately. Many clients also prefer the certainty of fixed fees.

You can request payment of a fixed fee into the office account before beginning work if the payment represents fees for services that are immediately due. However, this must be handled carefully:

The engagement letter should clearly state that the funds are office money, not client money.

Work should begin promptly after receiving payment.

If the work is not carried out, you must refund the relevant amount.

If the fee is for future work or held in trust, it should be treated as client money and placed in the client account until billed.

5. Review work in progress (WIP) regularly

Firms often hold significant value in unbilled work in progress. Reviewing WIP regularly helps identify cases where billing has been delayed unnecessarily.

Encourage fee earners to:

Record time accurately and in real time.

Raise interim bills on long-running matters.

Finalise billing quickly once milestones are achieved.

By converting WIP into billed income faster, firms can improve cash flow without touching client funds.

6. Reduce unnecessary costs

Improving cash flow is not just about increasing income; controlling expenses also plays a key role. Law firms can strengthen their cash position by:

Negotiating better terms with suppliers.

Outsourcing non-core functions such as IT or HR to reduce overheads.

Reviewing subscriptions, licences, and recurring expenses.

Moving to cloud-based software to cut maintenance costs.

Every saving improves your liquidity without compromising compliance.

7. Use technology for better financial control

Accounting and practice management software can make a huge difference to cash flow management. Choose systems that:

Integrate client and office accounting in line with SRA rules.

Automate reconciliations and alerts for overdue balances.

Produce accurate, real-time reports on WIP and aged debtors.

Digital tools also help ensure compliance by preventing errors such as misallocating client funds or failing to reconcile accounts properly.

8. Arrange short-term financing carefully

If cash flow becomes tight, consider legitimate short-term financing options rather than using client money. Options include:

Business overdrafts or credit lines.

Invoice financing or factoring.

Short-term business loans.

While borrowing adds costs, it avoids regulatory breaches and protects client trust. Always assess affordability and ensure borrowing arrangements align with professional obligations.

9. Train staff on SRA compliance

Cash flow risks often arise from misunderstanding the SRA Accounts Rules. Training all fee earners and support staff ensures everyone knows:

How to handle client and office money.

When funds can be transferred.

The importance of billing only for completed work.

Regular internal audits and compliance reviews can also identify problems early, before they affect cash flow or regulatory compliance.

Example scenario

A small law firm faced cash flow pressure due to slow-paying clients and high WIP. The firm introduced interim billing, used cloud-based software to monitor debtors, and trained staff on SRA-compliant money transfers. Within six months, average debtor days fell by 40 percent, and cash reserves increased — all without breaching SRA rules or risking client money.

Common mistakes to avoid

Transferring funds from client accounts before issuing invoices.

Failing to return unused client money promptly after completing work.

Using client funds to cover business expenses.

Delaying reconciliations between client and office accounts.

Overlooking the need for proper engagement letters that clarify payment terms.

Conclusion

Solicitors can improve cash flow safely by focusing on efficient billing, proactive debt management, cost control, and strong compliance systems. The SRA Accounts Rules prohibit using client money to fund firm operations, so every strategy must respect the clear separation between client and office funds.

With structured processes, regular training, and the right technology, law firms can enhance financial stability while maintaining full compliance with their regulatory obligations. Good cash flow management is not just about numbers — it protects both your clients and your firm’s professional reputation.