Episode Transcripts
Lisa Ainsworth: I wanted to start off with a hot topic that comes up a lot. A headline stat from the report this year is that 96% of firms raised their rates in the last 12 months, and most plan to do so again in 2026. Despite that, we're seeing 89% of firms saw write-offs increase year on year, and 90% also saw write-downs and discounting increase. These stats speak to what we've talked about for a while as a doom loop. Law firms are year on year raising their rates, some quite highly, and they're doing that to protect profitability. But what they're not aware of is that partners are then offering discounts to keep clients happy — and clients want more value from the work because they're paying a premium and not seeing that. So write-offs are increasing. What's your initial take on these stats? Do you think the doom loop cycle is worsening?
Rob Stote: I think the stat that 96% are raising their rates doesn't come as a surprise to anybody — law firms do that all the time. But I think what that stat, coupled with the write-off stat, is hiding is that firms are not realising those rate increases. There's something happening under the surface that's causing write-offs to increase year over year. It's a healthy environment that can raise rates, but it really comes down to whether they're able to realise them. The real challenge firms have to look at is what's structurally missing inside the firm that's causing them to write off basically all the gains they're getting from price increases.
Eric Wangler: Agreed. I would wonder who the 4% are that didn't raise rates, because I've not run into them. And usually this time of year, particularly in the US, people want to know what the outlook is for rates in 2026. My bold prediction is they will raise rates above average again this year. And I think it gets back to what Rob alluded to — they're covering some bad behaviour and bad hygiene under the surface. You raise rates 12% and net 4% — still healthy, still good for the business. But coupling all that together and cleaning up the issues in the back office would be paramount to holding that.
Rob Stote: As we get deeper into this, we'll talk more around cash flow and profitability. But when I talk about firms being able to realise those rates — that really is the key metric. I can raise my rates, but as Eric said, if I'm raising 12 to get 4, that's not a good spot. I'd rather raise 10 and get 6.
Eric Wangler: The headline rate of 12% is not anywhere near what they expected net, because they've got a lot of multi-year agreements, discount agreements, and AFAs in place. What that all nets out to is what really matters.
Lisa Ainsworth: You touched on it there, Eric — do you think 2026 could be the year firms hit the ceiling on rate hikes? What does the long-term future look like?
Eric Wangler: The Nostradamus moment. I don't think 2027 will be any different — there's nothing in the global economy suggesting otherwise. We'll talk later about AI and the impact that could have. I also think clients are getting smarter about the billing data they have and what they can do with it, so there'll be more scrutiny around rate comparisons between firms and service levels. It's going to remain a competitive market, but all indications are that rates will continue to rise.
Rob Stote: I agree — they'll go up in 27, 28, 29. Firms will continue to raise rates partly because their costs are going up as well. At the end of the day, it's more expensive to run a law firm this year than it was last year. So they're going to have to raise rates, but it gets back to: can they realise them?
Lisa Ainsworth: What do you think all of that is going to do to the client relationship?
Rob Stote: It will impact it if firms are not being transparent about why they're doing it. At the end of the day, they're delivering a service and the client is paying for that service. As long as they're able to articulate and justify why the rates are what they are, and what outcome they're trying to achieve with the client, that's fine. But if you raise your rates without a conversation, you're opening the door for that client to shop elsewhere. If rates keep going up and you're not providing equal value, your clients are going to look around.
Eric Wangler: And a conversation isn't an email or a letter — it's a conversation. Clients are looking for predictability and consistency. When they get that, they're generally pretty happy. Of course the outcome is what matters, but if you can show them what you're going to be billing them, show them how you're going to bill them, and do it consistently — don't surprise them — you'll probably come out ahead.
Lisa Ainsworth: I wanted to talk to you both about some of the cash flow related data that came out of this report. We're seeing 26% of firms now citing cash flow predictability as their top financial concern — it's risen drastically since last year and overtaken profitability. 50% identify aged WIP as the primary driver of cash flow pressure, up 32% from last year. There's quite a bit of nervousness and focus on cash flow from firms right now. Did that data surprise you at all, Rob?
Rob Stote: It didn't surprise me. If you look at how firms operate — profitability is a metric, it's a directional metric. But if you really want to get under the hood and understand the health of the firm, you're looking at cash flow, and you're looking at their WIP and AR together, their lockup, their production. That really gives you a sense of where the firm is sitting. Under increased pressure from slower paying clients and rising costs, it's not surprising that firms have identified cash flow predictability and WIP as a higher concern. They want better visibility into that because at the end of the day, that is the true measure of the health of the business. Profitability is a great metric — it's a very public metric — but it's your cash flow, your liquidity, your strength. That's the strength of the firm, not necessarily just profitability.
Eric Wangler: I would agree with what Rob said. Profit per equity partner is often a recruiting tool — what you're publishing is what gets picked up in the legal press. It's not a massive surprise that clients are choosing not to pay quite as quickly when firms are showing a billion in profit. It's hard to make a case that you're really struggling. Anecdotally — and this is the first time since 2021 — we sell software, and a lot of those renewals come due at the end of the calendar year. Because firms are cash-based, it's important to them what cash comes in and goes out. A long way of saying: we had a number of clients come to us in December wanting to prepay 2026 and even 2027 in some cases, and a couple of others who said, can I extend payment into January, really trying to conserve cash. My guess is 2025 was really strong for some of these firms — they had the right hygiene in place, they were doing the right things from a collections perspective, and they decided to de-risk 2026 by pushing some cash forward before paying it all to their partners. These firms are trying to be smarter and more aggressive with their internal measures and billing hygiene. Those are good things to do, regardless of the profitability of the firm.
Lisa Ainsworth: Touching on being smarter with internal measures — who do you think is the primary owner of aged WIP and AR within a law firm? Is it the lawyer? Has that changed in recent years?
Rob Stote: It is the lawyer, but it's like in sales — everybody has a hand to play. Finance is involved because they have to be giving timely information to the lawyers. The partners are involved because they have the relationship with the client. If your client relationships are good, the partner should be able to pick up the phone and make that call — if you're 90, 120 days behind on a collection, that's something the partner should be able to handle. But the back office has a role to play too, because they have to provide lawyers with the information. At the end of the day, lawyers are out doing their jobs, providing services — they're not necessarily thinking about the business side all the time, which you don't want them doing when they're in the middle of their work. But at the same time, they have to take a step back and operate like a business, and finance has a role to play there as well.
Lisa Ainsworth: What's the best way for finance to provide that information quickly to lawyers?
Rob Stote: Regardless of how you do it, having timely reporting and information delivered to the right people at the right time — we'll talk about this a bit more with some of the technology findings from the survey. But having the proper structure in place to provide that, where lawyers don't have to look hard for it and it's in front of them — that's really where the back office has a role to play.
Eric Wangler: When the billing cycle is on the right path, there's no reason a partner should be engaging in collections — that's a waste of their time. It's the exceptions they should be managing. If you see a large bill that's four or five months overdue, there are one or two things going on: either it didn't get to the right person to pay, or there's a problem with the case. Law firms are massively guilty of a big collections push at the end of their fiscal year. We've essentially conditioned clients for what I'd call the December discount — they don't pay the bill until December, and they know the firm will probably offer a discount just to get the cash in. Our law firm clients have inadvertently educated the market on the best time to get a deal, which is just lost revenue.
Lisa Ainsworth: And you're coining that term — the December discount?
Eric Wangler: I am, yes.
Rob Stote: Eric is right. If your business is running correctly, your partners shouldn't have to be scrambling in December. Every law firm sees it start to creep up in November — the reports start, finance gets hammered with requests. If things are running smoothly, that should just be ticking over normally without needing that big push at the end. But that's something all firms just have to work on internally.
Lisa Ainsworth: We're going to talk in a moment about the billable hour still being the key metric lawyers are measured by. But we are seeing law firms start to introduce other KPIs and metrics like management of WIP and aged AR — and that's come through in the research. Is that reflective of the conversations you've been having with law firms recently?
Eric Wangler: I would say it is. There are KPIs that firms are measuring their attorneys by, and whether or not there's a carrot or stick attached, it's likely to lead to a better outcome. We are seeing firms take a more aggressive interest in managing profitability and its impact on compensation. I think there's still room for improvement there, but part of it is just the culture of the firm. One of the reasons a firm is a preferred provider of legal services, or a preferred place to work, is because of the way they operate — they take care of their clients. So it's always a balance. Some firms are very aggressive with it, and that's their culture.
Rob Stote: Bringing it back to the WIP piece for a moment — when we talk about managing WIP, I think part of the reason that stat has increased is that firms have always realised this, but it's coming to the fore: managing aged WIP and production is really about recognising it as a risk to profit, not just a cash flow issue. Every day something sits in WIP or AR beyond the normal run, beyond that 120-day point, you have a decreasing chance of collecting. So to me, it's not surprising these numbers have increased — it tells me that firms are putting this into the risk category rather than just treating it as a straight cash collections exercise.
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