Law firm accounts receivable: Aging, collections and lockup days explained

Law firm accounts receivable is the money clients owe for work already billed, and its age tells a managing partner how fast fees turn into cash. Numetix prepares the aging report each month with a named reviewer. This guide covers aging buckets, lockup days, and what to collect first.

QUICK ANSWER: HOW SHOULD A LAW FIRM MANAGE ACCOUNTS RECEIVABLE?

• Age every unpaid invoice into buckets by days outstanding, and review the report monthly, because older balances become harder to collect.

• Measure lockup, the days from doing the work to receiving payment, and watch whether unbilled work or unpaid invoices is growing.

• Collect the oldest and largest balances first, and never apply client trust funds to fees unless the rules and the client allow it.

Numetix is the expert-led, AI-powered, human-in-the-loop bookkeeping layer for law firms, so the books are prepared by software and reviewed by a named person. The sections below cover how to build an aging report, how to measure lockup days, a collection order, and the trust account rule that limits what you can do.

What does an aging report show?

An aging report groups unpaid invoices by how long they have been outstanding. A common layout uses buckets of 0 to 30, 31 to 60, 61 to 90, and over 90 days. It reveals how much money is at risk, which clients are slow, and whether the problem is new or growing. Our guide to the accounts receivable aging report covers the mechanics, and the accounts receivable aging glossary entry gives the definition.

How do you measure lockup days?

Lockup is the time between doing the work and collecting the fee. It has two parts: unbilled work waiting to be invoiced, and invoices waiting to be paid. Clio's legal trends report publishes lockup benchmarks drawn from its users, which is vendor data, so treat it as a rough guide (Clio legal trends benchmarks). For the receivable part, divide receivables by annual billings and multiply by 365. For example, $240,000 of receivables against $1,200,000 of annual billings is about 73 days. The figures are illustrative. The lockup days glossary entry gives the definition.

Which balances should you collect first?

Rank balances by age first and amount second, so a large old balance is called before a small one. Online payment options also shorten collection time, as the ABA's Law Technology Today has discussed. Our guide to earned versus unearned fees explains when a retainer can be applied to an invoice.

What does the trust account rule limit?

Client funds held in trust are not firm money. Model Rule 1.15 requires lawyers to hold client property separately from their own and to keep records of it (ABA Model Rule 1.15). A collection effort must not reach into trust funds unless the rules, the engagement terms, and the client's authorization permit it. Your state rule controls, so check it before you apply any trust balance to a fee.

How does receivables fit into the monthly review?

Put the aging report next to unbilled work in the same review. If unbilled work grows while receivables stay flat, billing is late. If receivables grow while unbilled work stays flat, collections are slow. Our guides to work in process accounting and to the reports a managing partner should review explain how to read both together.

Frequently asked questions

How often should a law firm review its aging report?

Monthly is the minimum, and weekly works better for firms with many small matters. Review it after the invoices for the month go out, so you see what is new and what is stuck. Assign each old balance to one person with a date for the next step.

When should a firm stop work for a client who has not paid?

Follow your engagement letter and your state's professional conduct rules, which may limit withdrawal. Decide before the balance gets large, and document the decision. A written payment plan agreed early is often a better outcome than ending the engagement late.

Is a high receivables balance always a problem?

Not always. A large balance of recent invoices from reliable clients is normal for a busy firm. The warning sign is a growing share in the older buckets, or one client who represents a large part of the total. Watch the trend and the concentration, not only the amount.

Numetix is the expert-led, AI-powered, human-in-the-loop bookkeeping layer that keeps receivables, trust accounts, and monthly reports reviewed by a named person. See our bookkeeping services built for law firms.

This article is for informational purposes only and does not constitute legal or accounting advice. Rules vary by state and change over time, so confirm requirements with your attorney, accountant, or state regulator.