Finance for fee-earning firms

In most professional firms, cash lags behind the work. Fees are earned as time is recorded, but money only arrives once the work is billed and the client pays, so the firm funds salaries and overheads in between.

The gap is widest where firms bill at milestones or on completion. A law firm on a long matter, a consultancy on a fixed-fee project or an accountancy practice in filing season can carry months of costs before fees arrive. New fee earners add to the strain, as they are paid well before their work is collected.

For an LLP, members' drawings and any return of capital to a retiring member also matter, especially when they coincide with a tax bill.

The right product depends on what you are paying for and how long the need lasts. Short timing gaps usually suit flexible facilities; one-off investments usually suit fixed-term borrowing.

• Billed fees waiting to be paid: invoice discounting can release cash against invoices issued to business clients, usually confidentially, so clients keep paying the firm as normal.
• Recurring peaks in costs: a revolving credit facility lets the firm draw, repay and redraw up to an agreed limit, which suits seasonal workloads.
• Corporation tax or VAT bills: tax bill loans spread a large payment over a set number of months.
• Buying a practice or client book: acquisition finance can fund part of the price, often alongside the buyer's own money or deferred payments to the seller.
• Systems, offices, equipment and hiring: an unsecured business loan can fund software, an office fit-out or a recruitment drive, and equipment leasing can spread the cost of IT hardware.

Note that most invoice finance providers fund only issued invoices, not unbilled work in progress, so late billing limits what it can release.

Lenders mainly judge a professional firm on the quality and predictability of its fee income, because there are usually few physical assets to lend against. Points they often review include:

• Recurring income such as retainers, annual compliance work or fixed monthly fees, compared with one-off project fees
• Client concentration: how much income depends on the largest few clients
• Lock-up days and how quickly work in progress is billed and collected
• Profitability after salaries and, for LLPs, after members' drawings
• Which directors or members are willing to give personal guarantees

For law firms, money in client account belongs to clients, so lenders focus on the office account and the firm's own fee income.

Having documents ready usually speeds things up. Expect to be asked for:

• Recent filed accounts and up-to-date management accounts
• Business bank statements, often for the last three to six months
• An aged debtor report and, where relevant, a work in progress report
• A breakdown of fee income by client or service line
• For an LLP, the members' agreement or a summary of its key terms
• For a practice purchase, the target firm's accounts and the agreed heads of terms

• Bill work in progress promptly and chase overdue fees. Shorter lock-up improves how lenders view the firm and reduces how much you need.
• Map pressure points such as tax dates, VAT quarters and drawings, and apply before the pinch rather than after it.
• Match the term to the purpose: no long-term debt for a short gap, and no short facility for a practice purchase.
• Read guarantee terms carefully. Anyone who signs a personal guarantee may be personally liable if the firm cannot repay.

Welcome Finance is a commercial finance broker, not a lender. We work with limited companies, LLPs and partnerships of four or more partners, and arrange finance for the firm itself.

Every client has a dedicated relationship manager, a real person you can reach by phone, email and chat from first enquiry until the lender pays out. We check eligibility in about 60 seconds without affecting your credit score. Lenders on our panel run their own credit checks only if you decide to apply, and make their own decisions.

We charge you no fee. The lender pays us a commission when the finance completes. You can ask how much it is, and it can differ between lenders. See how we are paid.

Can an LLP borrow in its own name?

Yes. An LLP is a separate legal entity and can borrow in its own name, though lenders often ask members for personal guarantees. See our guide to finance for LLPs and larger partnerships.

Can finance help a firm repay a retiring member's capital?

Some lenders will consider lending to the firm for this, usually judged on its ability to repay from future profits.

Is professional services finance regulated?

Lending to limited companies, LLPs and partnerships of four or more partners is generally unregulated, and Consumer Credit Act protections generally do not apply. Read the agreement carefully and take independent advice if unsure.

How long does it take to arrange?

It depends on the product and lender. A straightforward unsecured loan can often move quickly once documents are in; acquisition finance takes longer because the lender reviews the firm being bought.