Cash flow conundrum: funding options for small law firms this autumn

Cash flow is a real and pressing issue in the legal sector right now in the wake of COVID-19. John Clarke, head of sales, Wesleyan Bank, outlines the financial support available to law firms and the alternative funding solutions they should consider to aid their recovery.

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Job Support Scheme to replace furlough

The government’s furlough scheme, which ends on 31 October 2020, will be replaced by the new Job Support Scheme (JSS). Beginning on 1 November 2020, it will run for six months. In a targeted attempt to keep employees within their roles, albeit on shorter hours, this scheme provides financial support for both businesses and their employees. Importantly, the JSS will be open to all businesses, even if they did not access the furlough scheme.

To be eligible, employees must work a minimum of 33% of their hours. These minimum hours will be paid by the employer, with a further third of the wage being paid by the government. The level of grant will be calculated based on an employee’s usual salary, with a cap of £697.92 per month.

Cash flow support

The Winter Economy Plan provided some temporary cash flow relief for firms that have taken out bounce back (BBLS) or coronavirus business interruption loans (CBILS). Those utilising the BBLS will be given the option of extending their loan’s length from six to 10 years, which will result in monthly payments being reduced by nearly half. Firms will also be able to access interest-only periods of up to six months and payment holidays as a result of the new ‘Pay as You Grow’ flexible repayment scheme.

CBILS lenders can now offer borrowers more time to make their repayments, and the Self-Employed Income Support Scheme (SEISS) will cover 20% of average monthly trading profits via a government grant.

Despite the BBLS and CBILS offering greater flexibility, it’s worth bearing in mind that these schemes have been an equal blessing and a curse, as some lenders are focusing on these exclusively. As a result, some have withdrawn other financial products from sale and are struggling to cope with the influx of last-minute enquiries, leaving applicants waiting for decisions and with a reduced range of choices for their finance needs.

Spreading the cost of mandatory fees

Firms that had deferred their VAT payment earlier in the year will no longer have to pay it in a lump sum at the end of March 2021. Instead, they are being offered the opportunity to split this payment into smaller, interest-free payments over the course of 11 months.

Previously, self-employed professionals who pay tax by payment on account were allowed to defer their July 2020 payment to 31 January 2021, but were then expected to settle their account in full. However, under the Winter Economy Plan, those who pay tax by self-assessment can defer the payment due on their 2019-20 tax return for 12 months from January 2021. Whilst deferring your tax bill may seem an easy decision, there could be financial implications, as you could ultimately be faced with a larger bill.

To avoid increased costs in the future, you can still choose to pay your tax bill as you normally would. Alternative finance providers offer unsecured loan facilities which allow you to spread the cost of tax liabilities in a flexible way, over a term of six or 12 months (for self-assessment tax). Some specialist lenders also offer an optional deferred repayment for the first month, further easing the burden on your finances.

Alternative funding solutions can also enable law firms to spread the cost of practising certificate fees over 10 months to ensure vital working capital is preserved for other parts of the business. To get an instant quote or to apply, visit Wesleyan Bank’s online application portal.

Investing in the future of your firm

After weathering the initial impact of the pandemic, law firms are now looking at how they can adapt to a significantly changed business environment and tackle ongoing financial and operational pressures head on. For all its disruption, COVID-19 has highlighted how embracing technology can give law firms the ability to deliver more efficient client services and increase staff productivity.

If your practice is planning to invest in assets, then you should take advantage of the government’s Annual Investment Allowance which was temporarily increased from £200,000 to £1 million from 1 January 2019 to 1 January 2021. Those looking to invest in qualifying expenditure could benefit from faster tax relief, as it allows a business to deduct the total amount of qualifying capital expenditure from its taxable profits in a given tax year. Most assets purchased for business use qualify, including:

  • IT investments
  • specialist equipment
  • furniture, flooring and lighting

Find out more about our corporate partner Catax, tax relief specialists

In addition, funding though an unsecured loan facility from either a traditional high street lender or alternative finance provider can assist businesses to preserve cash flow. Asset finance loans enable the cost of refurbishments, practice relocations, as well as specialist equipment and technology to be spread over a period of one to five years.

While the weeks ahead remain uncertain, there are a plethora of government schemes and funding options available. Remember, many of the day-to-day business management things you do will be especially relevant now. These should extend to:

  • maintaining accuracy of billing of hours
  • proactive supplier and contract negotiation
  • collaborative purchasing
  • prudent cash management and collection

In addition, there are free-to-access advisory services such as the Law Society itself and a wide network of experienced professionals, such as your existing accountants or advisory team, that can help you.

For more information and to set up an appointment to speak to an adviser, visit the Wesleyan website

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If you’re a small law firm or sole practitioner, you can discuss some of the issues raised by this article with our new small firms digital community, launching 19 October.

Law Society Connect is a place where you can meet fellow members, and share both challenges and accomplishments, learn from your peers, collaborate on common issues and innovate new approaches.

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