What is lock-up in an accounting firm?
Lock-up is the length of time an accounting or professional services firm's cash is tied up between doing work and being paid for it. It is the sum of days in work in progress, the time from doing work to billing it, and debtor days, the time from billing to collecting payment. Lower lock-up means faster cash and less borrowing.
Also calledlockuplock-up dayscash conversion for firms
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- Formula
- Days in WIP + debtor days
- Measured in
- Days
- Main levers
- Bill sooner, collect faster
How lock-up is measured and reduced
Days in WIP is unbilled WIP divided by average daily fees; debtor days is unpaid fees divided by average daily billing, both usually measured over the last twelve months. Adding them gives total lock-up in days. A firm with 40 days of WIP and 50 debtor days has its cash locked up for about three months, which it funds from partners' capital or borrowing. The main levers are billing sooner, through progress billing, recurring fixed fees or billing on completion of each stage, and collecting faster, through direct debit, card payments taken when the engagement letter is signed, and automated reminders. Firms track lock-up by partner and by client to find where cash gets stuck. Anchor and Ignition collect payment automatically from signed engagements, and Aiwyn reduces days in WIP and receivables.
Common questions
How is lock-up calculated?+
Add days in WIP, unbilled work divided by average daily fees, to debtor days, unpaid invoices divided by average daily billing, usually using twelve months of figures.
Why does lock-up matter to a firm?+
Every day of lock-up is cash the firm has earned but cannot use, which it has to fund from partners' capital or borrowing. Lower lock-up improves cash flow and profit distributions.
How can firms reduce lock-up?+
Bill in stages or monthly instead of at the end of a job, take payment by direct debit or card at sign-up, and automate reminders for overdue invoices.
Billing and collections software for firms
Part of Accountio’s accounting technology coverage · Glossary
