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Almost three quarters (73%) of legal professionals are concerned about the risks and time costs associated with holding client funds, according to a new report from B2B payments business Shieldpay.
The Time is Money: Counting the cost of client money management report comes amid the introduction of new fining powers for the Solictor’s Regulation Authority (SRA) last year. It surveyed 100 legal professionals at the UK’s Top 100 firms on their approach to client accounts.
More than two fifths (42%) of respondents stated the most time-intensive aspect of handling client funds and managing payments is due diligence. This is supported by 40% of respondents reporting that Know Your Customer (KYC) collection and verification takes two to three working days.
Due diligence is costing too much time
Meanwhile, for a third (32%) of lawyers surveyed, this process takes four to nine working days. The larger the deal size the less likely these checks can be completed within 24 hours, with lawyers at firms with an average deal size of £50-100m most likely to say checks take two to three weeks.
Andrew Hawkins, CEO UK & Europe at Shieldpay, said: ‘Our research demonstrates that managing payments on behalf of clients represents a sizeable administrative and financial risk burden for UK law firms. Not only does this perpetuate the use of manual, inefficient processes which makes the lives of top legal talent harder, but it starves firms of critical resource and partner time which could be better spent on higher value, billable tasks.’
The report also highlights a generational divide on attitudes toward risk. Nine in ten junior law professionals are concerned about the risks of client accounts. They’re also over 1.5 times as likely as senior colleagues to cite regulatory risk as the most challenging aspect of managing client funds.
75% of UK law firms have experienced a cyber attack in the last 12 months, with phishing emails and impersonation scams amongst the most common types of attack.
Over 75% of cybercrime reports were related to client accounts indicating that law firms are at higher risk due to the handling of client monies.
With high case loads can lawyers cope with cashflow issues as well?
The top challenge cited by junior respondents, however, was the cost of facilitating transactions and the associated administration fees (32%), whereas senior lawyers are most concerned about the complexity of international cross-border transactions with multiple currencies (33%).
Andrew continued: ’90% of junior law professionals are concerned. It makes sense that junior law professionals are more concerned about risks and time costs – at the coal face of transactions, with fewer years of industry experience and the pressure associated with less senior positions, junior law professionals are more embroiled in client fund complexity. But it’s an issue to take seriously as the industry seeks to tackle widespread junior lawyer burnout’.
Do the benefits outweigh the risks?
Despite these challenges, many law firms are still choosing to manage payments internally, with over a quarter (26%) doing so directly using a client account. Meanwhile, 28% said that while their firm is mindful of handling client money, they believe the benefits outweigh the risks for most transactions.
But the tide is shifting as nearly half (49%) of top law firms in the UK now report that they outsource their client account function to a paying agent or escrow provider (25%) or engage with a banking partner (24%). The remaining 25% say their clients handle payments directly.
‘The legal sector is increasingly recognising the benefits of using third-party managed accounts to liberate their teams and grow their revenue – all while increasing client satisfaction and improving their operational efficiency,’
Hawkins adds. ‘Time is money. But with new digital solutions dedicated to supporting complex transactions, such as litigation payments and M&A transactions client money management no longer needs to come at a heavy cost to law firms.’
Firms are also more aware of the regulatory and compliance concerns that come with client money management, with over a third (36%) implementing rules on the types of transactions they facilitate.