Law Firm Lockup Explained: WIP, AR, Unbilled Time—and How to Shrink It

If your law firm is “profitable” but cash feels tight, you’re usually not dealing with a revenue problem. You’re dealing with timing.

Law firm lockup is the money you’ve already earned (or are close to earning) that hasn’t turned into cash yet—because it’s stuck in unbilled work (WIP), slow billing, or accounts receivable (AR).

At Bennett Financials, I see this exact pattern in US-based businesses where CFO-level visibility changes the quality of decisions.

Key Takeaways

Lockup shrinks when you shorten three clocks: time-to-bill, time-to-collect, and time-to-correct WIP issues.
You don’t “collect harder” first—you tighten the system that produces clean, timely bills.
A CFO-style lockup dashboard turns cash flow into a controllable operational metric.

Law firm lockup is the total value of work and invoices that haven’t turned into cash yet. It’s for firms doing hourly, fixed-fee, or hybrid work that want more predictable cash flow. You track WIP (unbilled time/costs), billed AR, and the cycle times between work done, bill sent, and cash received. Most firms review lockup weekly for operations and monthly for trend and accountability. The requirements are clean time entry, consistent billing rules, and a simple cadence for follow-up.

Best Practice Summary

• Define lockup as one number: WIP + billed AR, then track it weekly.
• Set non-negotiables: daily time entry, weekly pre-bill review, and a monthly lockup review.
• Separate “billing quality” issues from “client payment” issues so you fix the right bottleneck.
• Create one owner-friendly dashboard: lockup days, WIP days, AR days, and realization.
• Use thresholds (not vibes) to trigger action on stale WIP and past-due AR.
• Standardize engagement and billing terms to reduce friction before it starts.

What is law firm lockup?

Law firm lockup is money trapped between “work performed” and “cash in the bank.” If you want to shrink it, you have to treat it like an operational workflow, not a finance afterthought.

Lockup typically includes:

• Work in progress (WIP): time/costs recorded but not yet billed
• Unbilled time: time that should be billed but hasn’t been finalized into an invoice yet
• Accounts receivable (AR): invoices sent but not yet collected

The reason it matters is simple: lockup is a working-capital loan your firm is giving away—funded by your payroll and your stress. That’s why cash flow constraints show up even when utilization looks decent.

When firms tell me “collections are the problem,” I usually find a messy upstream process: late time entry, slow pre-bills, unclear billing narratives, or invoices that trigger disputes. The fix starts before AR.

Why does law firm lockup matter for cash flow?

Law firm lockup matters because it determines how much cash you must keep on hand to operate—and how often you feel forced to delay hires, defer bonuses, or ride a line of credit.

Small businesses consistently report payment speed as a real challenge, which is another way of saying “cash timing is a business constraint.” (Federal Reserve, Small Business Credit Survey) (Federal Reserve Bank of Boston, Small Business Credit Survey payments analysis)

For a firm owner, lockup becomes a control panel:

• High lockup + stable revenue = cash conversion problem
• High lockup + rising revenue = growth is amplifying the cash gap
• High lockup + declining revenue = risk (you’re funding operations with yesterday’s work)

If you want calmer decisions, your lockup trend should be as visible as your pipeline.

Terminology

Lockup: Total dollars stuck in WIP + billed AR.

WIP (work in progress): Recorded work not yet invoiced.

Unbilled time: Time entered (or work completed) that hasn’t been turned into a billable invoice.

AR (accounts receivable): Invoices issued but unpaid.

Lockup days: The number of days of revenue tied up in WIP + AR.

Realization: The percentage of recorded billable value that becomes collected revenue (often discussed as billing realization and collection realization).

A/R aging: The breakdown of invoices by how long they’ve been outstanding (e.g., 0–30, 31–60, 61–90, 90+ days).

Retainer / trust funds: Client funds held and applied per applicable rules; handling and recordkeeping standards are often governed by professional conduct rules. (ABA Model Rules of Professional Conduct, Rule 1.15)

How do you calculate law firm lockup days?

You calculate lockup days by translating “dollars stuck” into “days of revenue.” That lets you compare month to month even as revenue changes.

A simple CFO-style approach:

1. Calculate average daily fees (or average daily revenue)
   Average daily fees = trailing 3-month fees / number of days in that period
2. Add up lockup dollars
   Lockup dollars = WIP + billed AR
3. Convert to days
   Lockup days = Lockup dollars / average daily fees

Then split it:

• WIP days = WIP / average daily fees
• AR days = billed AR / average daily fees

Here’s a clean way to track it without overcomplicating your reporting.

Metric	What it tells you	Simple formula	Practical cue
WIP days	How long work sits before billing	WIP ÷ avg daily fees	If rising, billing workflow is slow
AR days	How long invoices sit before cash	AR ÷ avg daily fees	If rising, collections/terms are weak
Lockup days	Total “cash trapped” time	(WIP + AR) ÷ avg daily fees	Use as the headline KPI
Realization	Quality of time capture + billing	Collected ÷ value recorded	Falling = leakage, write-downs, disputes

If you’re on cash-basis accounting for tax, that doesn’t change the operational reality: lockup still determines whether payroll feels tight. Your tax method affects reporting timing, not whether cash exists. (IRS, Publication 538)

What causes lockup to grow in law firms?

Lockup grows when one (or more) of these breaks:

1. Time capture isn’t daily
   If attorneys enter time in batches, you get missing narratives, rounding, and avoidable write-downs.
2. Pre-bills linger
   Partners postpone review, or review becomes a negotiation instead of a quality-control step.
3. Billing rules aren’t standardized
   If every matter is bespoke with unclear scope, invoices trigger questions and delays.
4. Invoicing cadence is inconsistent
   Monthly billing that slips by “a week or two” becomes a compounding cash drag.
5. Collections are reactive
   If follow-up starts at 60+ days, you’ve already trained clients that payment speed doesn’t matter.
6. Trust/retainer application is messy
   If retainers aren’t applied cleanly and consistently, invoices don’t reflect reality and disputes rise. (ABA Model Rules of Professional Conduct, Rule 1.15)

Quick compliance note: This is operational guidance, not legal advice. For trust accounting and client-funds handling, confirm requirements with your jurisdiction’s ethics rules and your counsel.

Unbilled time and work in progress tracking that attorneys will actually use

Unbilled time and WIP shrink when you reduce friction for the people creating the data.

Here’s what actually works in real firms:

Make time entry a daily closing task
Not “when you can.” Put it on the calendar like you would a court deadline.

Set a weekly WIP hygiene ritual
One 30–45 minute slot where each responsible attorney does three things:

• Confirm time is in and narratives are clean
• Flag scope changes or billing sensitivity
• Mark what is ready to bill this cycle

Define “stale WIP” with a hard number
Pick a threshold (example: 21 or 30 days) where WIP requires a decision:

• bill it
• write it down (and document why)
• convert it to non-billable (and fix the upstream issue)

If you don’t define stale WIP, it becomes a junk drawer. That junk drawer is your cash.

How to reduce law firm lockup without adding headcount

To reduce law firm lockup, shorten the time between (1) work done, (2) invoice sent, and (3) cash received—using thresholds and cadence, not heroics.

This is the sequence I like because it produces clean wins fast:

Step 1: Fix “time-to-bill” before “time-to-collect”
If invoices aren’t timely and clean, collections becomes a client-relationship problem.

Step 2: Install a billing clock
Pick your billing cadence (weekly, bi-weekly, or monthly), then set internal deadlines:

• Time entry cutoff (end of day Friday)
• Pre-bill review (Monday)
• Invoice send (Tuesday)
• Follow-up cycle begins immediately after due date

Step 3: Standardize billing narratives
Most disputes aren’t about the amount. They’re about “what is this charge?” Clean narratives reduce emails, revisions, and delays.

Step 4: Use a lockup threshold framework
You need triggers that force action, like:

• If WIP days > 30, then weekly WIP scrub until back under 30
• If AR 31–60 grows two months in a row, then tighten terms for new matters and run a focused follow-up sprint
• If AR 90+ exists, then partner review required: collect plan or closure plan

Step 5: Make lockup visible to partners
This isn’t about shame. It’s about making the cash cost obvious:

• “This matter has $X in WIP at Y days.”
• “This client has $X in AR at Y days.”
• “Here’s what we do next.”

If you want a team to change behavior, you need one scoreboard.

If your firm needs help installing the dashboard and cadence, this is exactly the kind of operational finance work we do through our fractional CFO services.

Law firm accounts receivable management: a collections system that preserves relationships

Law firm AR improves when collections is a process with roles, scripts, and timing—rather than a burst of awkward emails at 75 days.

Start with these principles:

Make payment terms explicit up front
The easiest invoice to collect is the one that matches the expectations you set in writing.

Segment AR by reason, not just age
Your follow-up should differ based on what’s happening:

• “Invoice received, waiting on AP process”
• “Client has questions / dispute”
• “Client is slow-pay / cash constrained”
• “Matter outcome dependent” (common in certain fee structures)

Create a follow-up cadence that starts early
A simple example:

• 3 days after invoice: confirm receipt (friendly)
• At due date: reminder with payment options
• 7 days past due: direct follow-up + “is there any issue with the invoice?”
• 14+ days past due: partner-level touch

Decide how you handle chronic slow-pay
If a client consistently pays at 75–90 days, your firm is financing their business. Either price for it, change terms, or reduce exposure.

Also, be careful with blanket “discount to get paid” habits. It trains the client to delay payment and negotiate later.

Quick-Start Checklist

If you want the fastest path to less lockup, do this in the next 14 days:

• Choose one headline metric: lockup days, tracked weekly
• Require daily time entry (minimum standard: entered by next business day)
• Implement one weekly WIP review per responsible attorney
• Set a billing calendar with internal deadlines (cutoff, pre-bill, invoice send)
• Turn on AR aging review weekly (not monthly)
• Assign clear owners:
  • billing owner (pre-bills and invoice timing)
  • AR owner (follow-up cadence)
  • partner owner (exceptions and escalations)
• Define stale WIP and stale AR thresholds (e.g., WIP > 30 days, AR > 60 days)
• Review realization monthly and identify top write-down causes

A simple decision framework: the Lockup Control Score

You don’t need a complicated model. You need a consistent one.

Score each area 0–2 (0 = weak, 1 = mixed, 2 = strong). Total score 0–10.

1. Time capture discipline
   0: weekly batches, frequent gaps
   1: mixed compliance
   2: daily/next-day compliance
2. Billing cadence reliability
   0: slips often, unpredictable
   1: mostly consistent
   2: fixed schedule, rarely missed
3. Pre-bill turnaround
   0: sits for weeks
   1: usually within 7–10 days
   2: within 48–72 hours
4. AR follow-up system
   0: reactive, no cadence
   1: some follow-up, inconsistent
   2: clear cadence, assigned owner
5. Exceptions management
   0: disputes and write-downs are common and untracked
   1: tracked sometimes
   2: top causes tracked and reduced monthly

Decision cues:

• 0–4: You’re bleeding cash through process drift. Install the basics first.
• 5–7: You’re close. Tighten thresholds and accountability.
• 8–10: Now optimize: realization by matter type, terms, and staffing mix.

Common lockup mistakes (and the fixes)

Mistake: Treating WIP as “we’ll bill it later”
Fix: Stale WIP thresholds and weekly WIP scrubs.

Mistake: Relying on end-of-month billing only
Fix: Move some matters to bi-weekly or milestone billing where appropriate.

Mistake: Letting partners “own” billing without a system
Fix: Partners approve; operations runs the clock and surfaces exceptions.

Mistake: Confusing “AR aging” with “collections strategy”
Fix: Tag AR by reason and apply the right playbook.

Mistake: Ignoring realization until year-end
Fix: Monthly realization review and write-down root-cause tracking.

Mistake: Fixing collections without fixing invoice quality
Fix: Clean narratives, consistent scope language, and predictable timing.

KPIs that actually matter for shrinking lockup

If you’re only tracking revenue and bank balance, you’re missing the levers.

Track these monthly (and at least review lockup weekly):

• Lockup days (headline)
• WIP days and billed AR days (components)
• Realization trend (billing + collection realization)
• A/R aging mix (especially 31–60, 61–90, 90+)
• Invoice cycle time (work done → invoice sent)
• Collection cycle time (invoice sent → cash received)
• Utilization vs. realization (busy doesn’t always mean profitable)
• Cash runway (months of payroll/overhead covered by cash)

For firms on GAAP financials, revenue recognition rules are a separate conversation, but the operational takeaway is the same: define when performance obligations are met and build systems that support clean billing and collection. (FASB, ASC 606)

Case Study: Example from our work

A pattern we see across professional services is that profitability can improve fast when finance shifts from “reporting” to “decision support.”

In the @VirtualCounsel story, the business was growing, but expenses were outpacing revenue. Bennett Financials performed a deep financial review, then built a structured, tailored asset-based tax plan and provided ongoing CFO-level advisory support. After Bennett came on board, @VirtualCounsel saw 94% revenue growth in 2022, a 401% profit increase, and a tax liability of $87,966 legally converted into a refund.

Why that matters for law firms: lockup work is the same mindset shift. You don’t win by staring at historical reports. You win by installing a cadence, thresholds, and accountability that turn financial data into next actions.

When to hire a fractional CFO

If you’re asking “Do I really need CFO-level help for this?” here’s the cue I use.

Consider CFO support when:

• Lockup days are rising for 2+ months and you can’t explain why in one sentence
• Partners disagree on billing/collections standards (and it’s slowing everything)
• You’re adding headcount but cash stress is increasing
• Realization is slipping and write-downs feel “normal”
• You want a predictable operating rhythm: weekly cash visibility, monthly performance review

This is where a CFO lens helps: we turn lockup into a measurable system, not a recurring fire drill. If you want help building that system, our fractional CFO services are designed for exactly this kind of operational finance problem.

The Bottom Line

• Treat lockup like an operational KPI: track lockup days weekly, not just AR monthly.
• Fix time-to-bill first: daily time entry, weekly WIP review, fast pre-bill turnaround.
• Use thresholds to force decisions on stale WIP and past-due AR.
• Standardize billing narratives and expectations so invoices don’t trigger friction.
• Review realization monthly so write-downs don’t become “the cost of doing business.”

Book a CFO consult with Bennett Financials if you want a lockup dashboard, billing cadence, and accountability rhythm installed in a way your partners will actually follow.