Covid-19 adds to the challenges facing law firms

Irish law firms are feeling the squeeze from Covid-19 as their levels of unbilled and unpaid work in progress has been rising in recent years, according to financial and professional services firm Smith & Williamson Ireland, which conducts an annual survey of the sector.

Paul Wyse, head of professional practice at Smith & Williamson Ireland, said law firms were cutting salaries and some were seeking to participate in the Government's temporary Covid-19 wage subsidiary scheme to shore up their finances as clients stall projects and struggle to pay bills.

“Everything has slowed down. Litigation already has a long tail, but this type of work is now likely to take longer. Getting property deals over the line is getting more challenging as financiers become nervous. Firms with large numbers of hospitality or marketing clients are dealing with people who have temporarily ceased trading,” said Mr Wyse.

“While many law firms are taking a two-week view to managing cash we’re encouraging them to prepare detailed 12-week rolling forecasts for cash flow – and prioritise payments – at this time.”

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Smith & Williamson is advising partners in law firms and their teams to prioritise work where clients have the resources and ability to pay, and to put additional efforts into collecting outstanding debts.

“Discuss with your partners the possibility of deferring distributions and/or raising additional partner capital,” Smith & Williamson said in a recent note to legal sector clients. “Again, this may not be necessary, but managing partner expectations will be key to success if you need to go ahead.”

Unbilled work

Smith & Williamson’s latest annual survey of Irish law firms, which took place late last year, found that unbilled work in progress stood at 36 per cent of working capital in 2019, up from 24 per cent two years earlier.

At the time when the legal sector was already facing multiple challenges, including issues with attracting and retaining staff as a number of overseas law firms set up operations in Ireland on account of Brexit, competition increased.

Smith & Williamson said in the report that an economic shock – with a hard Brexit seen at the time as the most obvious source – could cause significant cash flow issues for the sector.