Law firm WIP and lock-up: how lenders read your unbilled work and unpaid bills

Your firm is busy. Matters are moving, time is being recorded, bills are going out. Yet the account balance doesn’t match how hard everyone is working. That gap has a name, lock-up, and it’s the first thing a lender will want to understand.

We’ve looked at a lot of professional practices, and the pattern is the same across law, accounting, design and engineering firms: the work is done first, the cash arrives later. Here’s how a lender reads that gap in a law firm, what they’ll lend against and what they won’t, and how to present your numbers so the conversation is short.

What are WIP and lock-up in a law firm?

WIP (work in progress) is the value of time and work you’ve done on matters but haven’t billed yet. Debtors are bills you’ve issued that haven’t been paid. Lock-up is the total time your money is stuck in the system:

Measure	What it means	Where it sits
WIP days	How long work sits before it’s billed	Practice management system
Debtor days	How long issued bills take to be paid	Aged debtors report
Lock-up days	WIP days + debtor days	Add the two together

So if work typically sits for 45 days before billing and bills take 40 days to be paid, your lock-up is 85 days. For nearly three months, you’ve paid staff, rent and insurance without being paid for the work.

We haven’t found a reliable Australian benchmark that we’d be comfortable quoting, and published figures from overseas vary hugely by firm size and practice area. That’s a useful hint in itself: the number that matters to a lender is your own trend. Is lock-up shrinking, steady or creeping up?

Why do lenders care about lock-up?

Because it tells them how much working capital your firm needs just to keep operating. A firm with $1.5m in annual billings and 85 days of lock-up has roughly a quarter of a year’s income tied up at any moment. Grow by 20% and that tied-up amount grows with it, which is why a growing firm can feel cash-poor right when it’s doing well.

From the lender’s side, a few questions follow:

• Is the lock-up stable, or getting longer because bills are going out late or being paid late?
• Are write-offs eating the WIP before it reaches a bill?
• Is one large matter or client driving most of the figure?
• Does the firm have a regular billing cycle, or does everything land at the end of the matter?

Will a lender lend against unbilled WIP?

Almost never directly. Unbilled WIP isn’t a debt yet. The client hasn’t received a bill, hasn’t agreed to it and might dispute it, and a partner might write part of it off. A lender can’t take security over something that might shrink by a third before it’s billed.

What lenders will do:

1. Fund billed, undisputed invoices. Once WIP is billed and the client hasn’t objected, it’s a debtor, and debtor finance or invoice finance can advance against it. Lenders will usually exclude old, disputed and related-party invoices.
2. Size a cash-flow facility on turnover. An unsecured or working capital loan is generally sized on turnover and bank statements, typically in the $5k–$500k range, not on the WIP schedule.
3. Use property security for larger needs. If the partners own property, a secured facility from $20k up to $5m may suit bigger needs such as a partner buyout or an office purchase.

Note that debtor finance involves a lender registering a security interest on the PPSR, and your existing bank’s security may need to be sorted out first. Our debtor finance documents guide lists what to have ready.

Why can’t trust money fix a lock-up gap?

It’s tempting, when the office account is thin and the trust account is full, to think of that money as a buffer. It isn’t. Trust money belongs to clients, and lenders exclude it entirely when they look at your finances.

There’s a legitimate way for costs to move from trust to your office account, but it follows set steps. In NSW, for example, under the Uniform Law’s rules, the usual route is:

1. Give the client a bill that refers to the proposed withdrawal, with a statement that you’ll withdraw the amount unless you hear an objection.
2. Wait 7 business days. If the client objects, they have 30 days to refer it to the Legal Services Commissioner or seek a costs assessment; otherwise you can proceed.

Other methods exist too, such as a client’s written authority, or a costs agreement with commercial and government clients. The practical lesson for cash flow: the sooner you bill, the sooner trust-held funds can legitimately move. A bill that’s three weeks late adds three weeks to lock-up. The Law Society’s trust account guidance and the Law Society Journal’s practice refresher set out the exact requirements.

How does lock-up look in different practice areas?

This is where the lender’s lens gets interesting. Same industry, very different cash-flow shapes:

Practice area	WIP pattern	How a lender reads it
Conveyancing and property	Short matters, billed at settlement	Quick, predictable, low lock-up
Wills and estates	Billed in stages or on completion	Moderate; probate matters can drag
Family law	Retainers and regular billing	Steady if billed monthly, risky if clients struggle to pay
Commercial and corporate	Larger bills, bigger clients	Higher dollar debtors, usually reliable
Litigation	Long matters, interim bills	Longer lock-up; staged billing matters
No-win-no-fee / contingency	Paid on success	WIP discounted heavily; track record is key

An accounting practice, by comparison, tends to look steadier: recurring compliance and advisory work billed regularly. Our accounting practice finance page covers that side, and the architecture and engineering guide shows how fee-stage billing changes the picture again.

A worked example (not a real firm)

Imagine a six-lawyer suburban practice, mostly property, wills and small-business work, billing about $1.8m a year. The principal runs the reports in October and finds:

• WIP sitting for 50 days before bills go out, mostly because bills wait for partner review.
• Debtors averaging 35 days.
• Lock-up of 85 days, roughly $420k tied up.

The firm wants to hire two lawyers and fit out a second office. A lender looking at this firm will ask why WIP sits for 50 days, because cutting it to 30 would release cash without any borrowing. They’ll want an aged debtors report, a WIP breakdown by matter type and six to twelve months of bank statements. The fix and the facility often go together: tighten the billing cycle, then use a modest cash-flow or working capital facility to cover the hiring gap while the improvement flows through.

How should I present WIP and lock-up to a lender?

• Run the same two reports every month, the WIP report and the aged debtors report, so you can show a trend, not a snapshot.
• Split WIP by matter type, and flag contingency matters separately.
• Show write-offs over the last 12 months as a percentage of billings. Honest numbers beat a flattering WIP total.
• Leave trust balances out of your cash position and say so.
• Note your billing cycle: monthly, stage-based or on completion.
• Explain one-offs: a large matter about to be billed, or a client who’s slow but good for it.
• Say what the money is for and how it comes back: hiring, fit-out, partner buyout or smoothing a lock-up gap.

If you’re not sure whether to fund a gap or fix it first, you can always ask. Sometimes a lender can help you do both.

Cash tied up in unbilled work? Let’s see what fits

Lock-up isn’t a sign your firm is in trouble. It’s the cost of being paid after you’ve done the work, and every professional practice carries it. What matters is whether you can carry it comfortably while you grow. If you’d like to see whether a facility could carry your firm through the gap, check your options here.

The enquiry takes about 60 seconds, and enquiring won’t touch your credit file: there’s no credit check when you first enquire. We don’t send your details to a pile of lenders, so your phone isn’t going to ring with strangers between client calls. A real person will look at how your firm actually bills and gets paid, then call you to talk it through. Please fill the form in accurately, including your rough annual billings, any ATO balance and what the money is for, so we can match the right option the first time.

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