How Payments on Account Can Improve Law Firm Cash Flow

For many legal aid practices and litigation departments, profitability is not simply about winning cases. It is about getting paid promptly for the work that has already been completed.

Even highly successful law firms can experience pressure on firm cash flow if there are delays in recovering legal costs or submitting legal aid bills. Work in progress can accumulate over months or even years, leaving significant sums tied up in unrecovered costs.

At ARC Costs, we are increasingly assisting firms with cash flow management, helping them maximise payments on account of costs (POAs), prepare and submit Bills promptly and identify opportunities to improve the speed of costs recovery.

The result is not simply better costs recovery; it is healthier law firm cash, improved profitability and greater financial certainty.

Why cash flow matters more than ever

A profitable department on paper is not always a profitable department in practice. Many litigation teams carry substantial work in progress whilst waiting for cases to conclude or for legal costs to be assessed and paid.

For legal aid firms, delays in submitting final bills or claiming interim payments can have a significant impact on monthly revenue.

Similarly, firms acting under Conditional Fee Agreements or in complex civil litigation may have considerable sums outstanding long after the substantive case has concluded.

Good cash flow management means identifying opportunities to convert work into income as early as possible rather than waiting until the end of the litigation.

What is a payment on account of costs?

A payment on account of costs, often referred to as a POA, is an interim payment made before the final assessment of legal costs.

Following judgment or settlement, the successful or receiving party may ask the court to order the unsuccessful or paying party to make an interim payment on account of the costs that are likely to be recovered.

The purpose of this payment is straightforward. Rather than requiring the successful party to wait until the detailed assessment process has concluded, the court can order part of the recoverable costs to be paid immediately. This helps to reduce the financial burden on the receiving party whilst the final assessment of costs continues.

The court’s powers

The court has discretion to order a sum on account following judgment. The starting point is found within the Civil Procedure Rules, including CPR 44.2, which deals with the court’s general discretion in relation to costs.

Where a costs order has been made in favour of the successful party, the court will often consider whether an account of costs should also be paid before detailed assessment. The amount awarded will vary depending on the circumstances of the case, but interim payments can represent a substantial proportion of the likely recoverable costs.

For many firms, that can make a significant difference to monthly cash flow.

Why POAs are often overlooked

Despite their obvious benefits, many firms fail to maximise opportunities for interim payments. Sometimes this is because applications are not considered at the appropriate stage.

In other cases, delays arise because Bills of Costs are not prepared quickly enough to support negotiations or detailed assessment.

At ARC Costs, we frequently review files where significant sums could have been recovered much earlier through effective costs management.

We identify these opportunities so that firms can improve liquidity without increasing the amount of work undertaken.

Supporting legal aid firms

Legal aid practices often face particular challenges. Large volumes of work may be completed before final payment is received, creating pressure on monthly income and profitability.

We work with firms to streamline the preparation and submission of legal aid bills, reducing delays between file completion and payment. Combined with advice on payments on account where appropriate, this helps firms maintain more predictable income throughout the year.

Rather than allowing completed files to accumulate, we help convert work into revenue as efficiently as possible.

Turning work in progress into cash

One of the biggest opportunities for improving law firm cash flow lies in reducing the time between work being completed and costs being recovered.

That includes:

• Preparing Bills of Costs promptly.
• Reviewing files suitable for interim payments.
• Progressing Points of Dispute and Replies efficiently.
• Negotiating settlements at an early stage.
• Avoiding unnecessary delays before detailed assessment.

In our experience, firms that actively manage costs recovery often experience stronger cash flow than those that simply wait for matters to conclude naturally.

The commercial benefits

Improving cash flow delivers benefits far beyond the finance department. Earlier recovery of legal costs allows firms to:

• Invest in recruitment.
• Expand departments.
• Purchase new technology.
• Improve profitability.
• Reduce reliance on borrowing.
• Better manage overheads.

For many practices, improving the speed of recovery has a greater impact than increasing chargeable hours. Recovering existing work more efficiently can transform departmental performance.

A proactive approach to costs recovery

At ARC Costs, we encourage firms to think about costs recovery throughout the life of a matter rather than only once litigation has concluded.

This includes considering:

• Costs budgeting.
• Interim payments.
• Timing of Bills of Costs.
• Settlement strategy.
• Detailed assessment preparation.

By adopting a proactive approach, firms are often able to recover substantial sums much earlier than they might otherwise expect.

Looking ahead to the new year

Cash flow planning becomes particularly important as firms approach key financial milestones such as the new year, when many businesses face significant financial commitments including income tax, corporation tax and partner drawings.

For sole practitioners and partnerships, planning ahead for the year’s tax bill, tax returns and assessment tax return deadlines can place additional pressure on working capital.

Whilst legal costs recovery cannot eliminate those liabilities, improving the speed with which outstanding costs are recovered can help firms manage cash reserves more effectively during busy financial periods.

Where appropriate, firms may also wish to review their online account with HMRC to understand upcoming payment obligations and whether there are circumstances in which they can apply to reduce payments on account if profits have genuinely fallen. Care should always be taken before seeking to reduce payments, as underpayments may ultimately result in interest becoming payable if estimates prove inaccurate.

Robert Collington’s commentary

Robert Collington, Costs Lawyer at ARC Costs, comments:

“One of the biggest opportunities we see is not necessarily increasing recoverable costs, but improving the speed at which firms recover them. Many practices have substantial sums tied up in completed work simply because Bills have not been prepared or opportunities for payments on account have not been explored.”

He continues:

“We are currently working with a number of firms to improve departmental profitability by reducing delays in costs recovery. Preparing Bills promptly, progressing negotiations efficiently and identifying opportunities for interim payments can have a significant impact on monthly cash flow without increasing fee earner workload.”

How ARC Costs can help

At ARC Costs, we work with litigation practices and legal aid firms to improve firm cash flow through efficient costs recovery.

Our services include:

• Preparing Bills of Costs.
• Legal aid billing.
• Costs budgeting.
• Identifying opportunities for interim payments on account.
• Negotiating costs settlements.
• Detailed assessment proceedings.
• Strategic advice on cash flow management.

Our objective is simple: to help firms recover legal costs more quickly, improve monthly profitability and reduce the amount of cash tied up in outstanding files.

For many firms, better costs recovery is not just about maximising the value of a Bill; it is about creating a healthier, more sustainable business. Combining technical costs expertise with a commercial understanding of how law firms operate allows ARC Costs to help clients turn completed work into cash sooner and build stronger financial performance throughout the year.

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