Most practice owners know their fee income to the pound. Far fewer know how much of the time their team recorded was billed, how long work sits before it is invoiced, or how long invoices sit before they are paid. Those three figures decide whether a busy practice is a profitable one, and they are the first thing a buyer asks about when a firm is sold.
This guide explains each figure, how to work it out from data you already hold, and what to do when it moves the wrong way.
Recovery
Recovery is the share of recorded time that ends up billed. If the team records £10,000 of time at standard rates on a set of jobs and the firm bills £8,500 for them, recovery on those jobs is 85%.
Work it out by job, by client and by service line, because the firm-wide average hides the detail that matters. A practice with 90% recovery overall can still have a cluster of clients billed at 60%, paid for by everybody else.
- Low recovery on one client usually means a fixed fee that no longer matches the work. That is a pricing conversation.
- Low recovery on one service, such as bookkeeping, usually means the service is priced below what it costs to deliver.
- Low recovery on one person's work can mean training, or jobs being given to someone more senior than they need.
Recovery needs time to be recorded consistently. If the team does not record time, start with the five or ten largest clients for one quarter. That sample is usually enough to find the problem.
Work in progress
Work in progress, or WIP, is time recorded but not yet billed. Measure it in days: total unbilled time divided by average daily billing. Thirty days of WIP means the firm is, on average, a month behind in invoicing work it has done.
WIP grows for predictable reasons. Jobs finished but not reviewed. Reviews done but invoices not raised. Fixed-fee clients billed annually, so a year of work sits on the books until the accounts are signed. Each of those has a fix: a review deadline, an invoicing day each week, or a move to monthly billing.
A firm that moves fixed-fee clients to monthly direct debit removes most of its WIP and most of its debtors in one step, and makes its cash flow predictable. It is usually the single biggest improvement a small practice can make.
Lock-up
Lock-up is WIP plus debtors, in days. It is the total time between doing the work and having the cash. A firm with 30 days of WIP and 45 days of debtors has 75 days of lock-up: two and a half months of its own work funded out of its own pocket.
Every day of lock-up has a cost. For a practice billing £50,000 a month, each day is roughly £1,650 of cash tied up. Cutting lock-up from 75 days to 45 frees around £50,000, without winning a single new client.
Working the numbers out
All three figures come from data most practices already hold: time records, invoices and payments. The difficulty is that the data sits in two or three systems. Time in one, invoices in another, payments in the bank feed of a third.
A quarterly spreadsheet is a fine place to start. Export time by client, invoices by client and receipts by client for the same period, and put them side by side. The first time takes an afternoon. After that, the case for joining the systems up so the figures refresh by themselves makes itself.
What to look at each month
- Recovery by client, sorted lowest first. The bottom five are your pricing list.
- WIP in days, with the oldest unbilled jobs named.
- Debtor days, with every invoice over sixty days named and owned by someone.
- Lock-up, as a single number, and which way it moved since last month.
Four figures, one page, ten minutes at the partners' meeting. Kept up for a year, they change pricing, billing and chasing habits more than any amount of talk about profitability.