It’s January. You’re looking at your business account trying to figure out how to make payroll.
You did great work in October. Billed it in November. And you’re still waiting to get paid.
Meanwhile, rent is due. Year-end expenses are hitting your credit card. Tax payments are coming.
You’re profitable on paper. The numbers say you had a good year.
But your bank account says otherwise.
I’m Stephanie Everett, founder of Lawyerist Lab. After helping hundreds of small law firm owners navigate cash flow crises, I can tell you: this isn’t a revenue problem. It’s a lockup problem. And it’s fixable.
Welcome to lockup—the cash flow problem that’s quietly killing profitable law firms.
What Is Lockup in Law Firms?
Lockup is the time between doing the work and actually getting paid for it.
Not the time between sending an invoice and getting paid. The time between doing the work and getting paid.
Here’s what that looks like in most law firms:
Day 1: You do the work
Day 30: You send the invoice (because you bill monthly)
Day 60: Client hasn’t paid yet, you send a reminder
Day 90: Payment finally arrives
That’s 90-day lockup. Your money isn’t lost—it’s just locked up. In prison. For three months.
And during those 90 days, you still have to:
- Make payroll
- Pay rent
- Cover expenses
- Keep the lights on
This is why firm owners tell me: “I’m profitable, but I’m always stressed about money.”
You don’t have a revenue problem. You have a lockup problem.
Why Lockup Matters More Than Your Profit Margin
Most law firm owners focus on the wrong number.
They track revenue. They calculate profit margins. They set billable hour targets.
But they don’t track lockup.
Here’s why that’s a problem:
Scenario 1: High profit, high lockup
You have a 35% profit margin. Excellent.
But your average lockup is 90 days. That means:
- You did $100K of work in January
- You won’t see that money until April
- You still have to cover February and March expenses
- You’re constantly scrambling for cash even though you’re “profitable”
Scenario 2: Lower profit, low lockup
You have a 25% profit margin. Not as impressive on paper.
But your average lockup is 15 days. That means:
- You did $100K of work in January
- You get paid by mid-February
- You can cover expenses without panic
- Your cash flow is steady and predictable
Which firm is healthier? Which owner sleeps better at night?
Lockup determines your cash flow. Cash flow determines whether you can actually run your business without constant anxiety.
Profit margins matter. But if your money is locked up for 90 days, your profit margin is irrelevant when payroll is due next week.
How to Calculate Your Law Firm’s Lockup
Here’s the formula most law firms use:
Lockup = (Accounts Receivable + Work in Progress) ÷ Average Daily Revenue
Let me break that down:
Accounts Receivable (AR): Money you’ve billed but haven’t collected yet
Work in Progress (WIP): Work you’ve done but haven’t billed yet
Average Daily Revenue: Your annual revenue ÷ 365 days
Example:
Your firm has:
- $45,000 in AR (invoices sent but not paid)
- $30,000 in WIP (work done but not yet invoiced)
- $500,000 in annual revenue
Average daily revenue = $500,000 ÷ 365 = $1,370/day
Lockup = ($45,000 + $30,000) ÷ $1,370 = 55 days
That means on average, it takes 55 days from the time you do work until you get paid for it.
Your money is locked up for almost two months.
What’s a “good” lockup number?
It depends on your practice area and business model, but here are rough benchmarks:
- Under 30 days: Excellent cash flow management
- 30-60 days: Average for most law firms
- 60-90 days: You’re starting to strain your cash flow
- Over 90 days: You have a serious cash flow problem that will create crises
Most small law firms I work with have lockup between 60-120 days. They’re profitable on paper but constantly stressed about money.
4 Ways to Reduce Lockup and Improve Cash Flow
The good news: Lockup is fixable. Here are changes that actually work.
1. Bill More Than Once a Month
Most firms bill monthly out of habit, not strategy.
But monthly billing means you’re doing 30 days of work before you even send an invoice. That’s 30 days of automatic lockup before you even start waiting for payment.
What to do instead:
Bill twice a month (mid-month and end-of-month) or weekly for large matters.
Yes, it’s more administrative work. But here’s the math:
Monthly billing:
- Do work Days 1-30
- Invoice on Day 30
- Get paid on Day 60 (if lucky)
- Lockup: 60+ days
Bi-weekly billing:
- Do work Days 1-15
- Invoice on Day 15
- Get paid on Day 30
- Do work Days 16-30
- Invoice on Day 30
- Get paid on Day 45
- Average lockup: 30-35 days
You’ve cut your lockup nearly in half. Your cash flow just got significantly healthier.
Pro tip: For large matters or monthly retainer clients, bill weekly. This keeps cash flowing consistently and prevents the “surprise large bill” problem that causes payment delays.
2. Change Your Payment Terms
“Payment due within 30 days” is standard. It’s also costing you cash flow.
What to do instead:
Make payment due upon receipt or within 10 days maximum.
I know what you’re thinking: “My clients won’t accept that.”
Here’s the thing: Most clients don’t actually read payment terms until there’s a problem. And if you set the expectation from the start, most will adapt.
How to implement this:
In your engagement letter: “Invoices are due upon receipt. Payment is expected within 10 days of invoice date.”
In your invoice: Make it clear at the top: “Payment Due: Upon Receipt”
In your initial conversation: “Just so you know, we bill [weekly/bi-weekly/monthly] and payment is due within 10 days. Does that work for your accounting process?”
Most clients will say yes. The ones who push back are usually the ones who would have been slow-paying anyway.
What about clients who insist on Net 30?
Some institutional clients have policies. That’s fine—but charge accordingly. If they need 30-day payment terms, your rates should reflect that you’re extending them credit.
3. Be Diligent About Retainers
Retainers aren’t just money sitting in trust. They’re your cash flow management tool.
What most firms do wrong:
- Client pays $5,000 retainer
- You do work and draw against it
- Retainer gets down to $1,000
- You keep working (because the case is urgent)
- Retainer hits $0
- You keep working (you’ll bill them later)
- You’re now doing work you haven’t been paid for yet
Lockup just increased.
What to do instead:
Set a retainer replenishment threshold and enforce it religiously.
Example policy: “When your retainer balance drops below $2,000, we’ll ask you to replenish it back to $5,000 before we continue work. This ensures we can continue serving you without interruption.”
Put this in your engagement letter. Communicate it clearly upfront. Then actually enforce it.
What this sounds like in practice:
“Hi [Client], your retainer balance is at $1,800. Before we continue work on [next task], we’ll need you to bring the balance back up to $5,000. Here’s the invoice for the replenishment. Once that’s processed, we’ll continue moving forward.”
Most clients understand this. It’s a normal business practice. The ones who resist are often the ones who will become payment problems later anyway.
Pro tip: Don’t wait until the retainer hits zero. If your threshold is $2,000, send the replenishment invoice when they hit $2,500. This gives buffer time for payment processing.
4. Talk About Money Upfront (So Clients Know What They’re Signing Up For)
Most payment problems start because clients didn’t understand what they were signing up for financially.
They knew your hourly rate. But they didn’t really know what that would mean in practice.
So when the first bill comes, they’re surprised. When they’re surprised, they delay payment while they “review it” or “check with their spouse” or “talk to their accountant.”
Your lockup just extended another 30 days.
What to do instead:
Have a clear money conversation before work begins.
Not just “our rate is $350/hour.” But:
“Based on cases like yours, most clients can expect to invest between $X and $Y over the next [timeframe]. Here’s how that typically breaks down…”
“We’ll bill you [weekly/bi-weekly/monthly], and payment is due within 10 days. Our first invoice will likely be around $X for [specific work]. Does that work with your expectations?”
“Your retainer is $5,000. When it drops below $2,000, we’ll ask you to replenish before we continue work. That typically happens around [timeframe]. Is that clear?”
What this does:
- Sets clear expectations (no surprise bills)
- Gives clients time to plan financially
- Reduces payment delays caused by confusion
- Positions you as professional and organized
Clients who can’t have this conversation upfront are often the ones who become payment problems later. This conversation is both cash flow management and client screening.
Common Lockup Mistakes Law Firm Owners Make
Mistake 1: “I don’t want to seem pushy about money”
You’re not being pushy. You’re running a business.
Clients expect to pay for services. They expect clear communication about payment. Being upfront about money is professional, not pushy.
What’s actually pushy? Sending vague invoices, waiting 60 days, then calling repeatedly asking where payment is.
Mistake 2: “My clients won’t accept tighter payment terms”
Most clients will accept whatever terms you set—if you communicate them clearly from the start.
The clients who push back hard on reasonable payment terms (payment due within 10 days, retainer replenishment policies, bi-weekly billing) are usually the ones who would have become payment problems anyway.
You’re not losing good clients by having clear payment policies. You’re screening out problem clients before they cost you cash flow.
Mistake 3: “I’ll fix cash flow by bringing in more revenue”
More revenue doesn’t fix lockup. It often makes it worse.
If your lockup is 90 days and you double your revenue, congratulations—you now have twice as much money locked up for 90 days.
Your cash flow problems just doubled.
Fix lockup first. Then grow revenue. In that order.
Mistake 4: “I don’t have time to bill more frequently”
You don’t have time to constantly stress about cash flow either.
Bi-weekly billing takes an extra 30 minutes twice a month. That’s one billable hour.
If that one hour of administrative work cuts your lockup in half and eliminates cash flow anxiety, it’s the best hour you’ll spend all month.
Mistake 5: “I’ll think about this when cash flow gets really bad”
By the time cash flow gets “really bad,” you’re in crisis mode. You’re scrambling to make payroll. You’re using credit cards to cover expenses. You’re losing sleep.
Fix lockup before you need to. Not after.
What Business Experts Know About Law Firm Cash Flow
Here’s what surprises most firm owners: Cash flow management is more important than profit margin for law firm survival.
I’ve seen firms with 40% profit margins go under because they couldn’t manage cash flow. And I’ve seen firms with 15% profit margins thrive because they had excellent lockup management.
The math is simple:
- High profit + poor cash flow = constant stress and eventual crisis
- Moderate profit + strong cash flow = stability and sustainable growth
Most law firm owners spend hours analyzing their profit margins. They should be spending that time analyzing their lockup.
This is exactly what we work on in Lawyerist Lab’s Cash Flow Planning workshop. Not just “build a budget.” But the mechanics of cash flow that actually keep firms healthy: lockup, working capital, cash reserves, billing frequency, payment terms, retainer management.
Because you didn’t go to business school. You went to law school. And nobody taught you that lockup is the difference between “profitable on paper” and “actually able to pay yourself.”
