Outgoing cash control is easy. Suppliers need to be paid but we must ensure that we are getting the best value for money out of every pound spent. Of course there may be good reasons to deal with certain suppliers (good client, senior partner’s brother-in-law, etc.) but otherwise keep records of prices paid, negotiate ruthlessly for each new order placed until you are certain you are getting the best value for money, and then only pay when you need to, taking all factors into account.

If it’s a local tradesman who has just come out on a Sunday to fix a plumbing leak he gets his cheque the day you get his bill – he will appreciate it and you need him both to speak well of your firm and give you the best service in future. But if it’s a legal book supplier, perhaps there is less urgency………

As discussed on the main Finance page, good control of your cash is so important that it cannot be emphasised enough. Getting in the work, doing it and getting paid for it are the fundamentals and we can never neglect them. Far too many firms don’t really know what their true cash position is and any bank manager will tell you that decisions to lend often depend on good evidence of that.

Good cash flow control and forecasting is a fundamental part of the management of any business and law firms are no exception. And yet few take this seriously.

Here is one good example that shows how vital this is. I did some work for one firm that got into real trouble financing PI work. The head of department had taken on more “bought in” work than his partners had agreed to and had completely failed to appreciate just how much working capital was going to be required. The work was highly profitable but the department had to run without revenue for some 15 to 18 months before matters began to settle and fees come in: With disbursements we were looking at needing roughly £250,000 per FE to get this going and I believe that this is not at all unusual. In the end, and after providing detailed cash flow and profit forecasts, the bank agreed to support the exercise and we escaped. Indeed the bank was eventually delighted and said they would look happily at any future requests for similar funding. BUT, this would have finished some firms. This particular one had sound finances and partners of some substance, so the bank was approachable. Had we been less profitable and/or more stretched financially it might have been a different story.