As clients scrutinize bills and unilaterally change payment terms, law firms take longer to collect
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The growth in law firm revenue in the first half of the year is actually “a rate story,” according to a report by Citi Private Bank.
Law firm revenues grew 4.1% in the year’s first half—thanks in large part to billing rate growth of 4.6%, according to an American Lawyer article by officials with Citi Private Bank’s Law Firm Group.
There are a few villains in the story, however. Tempering revenue growth are soft demand for legal services and a collection cycle that is lengthening in a “prolonged trend,” according to the article.
Demand for legal services grew only 0.1% in the first six months of 2019, though many law firms indicated that activity improved during the second quarter. The collections trend line, however, is worsening.
In the first half of the year, the collection cycle lengthened by 1.6%, and law firms are blaming clients.
“We continue to hear from firms about the shift in client bill payment behavior driving much of the collections slowdown, citing e-billing systems and greater scrutiny around bill review,” the article reports. “Some firms talk of their clients unilaterally changing payment terms as a primary driver of the longer collection cycle.”
Citi Private Bank also says that expenses grew 5.9% for the first half of the year, driven in large part by 7.3% growth in lawyer compensation. The growth in expenses “significantly exceeded revenue growth,” the article says.
The results are based on a sample of 191 law firms, ranging from top-grossing firms to boutiques.
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