Law firms impacted by current credit crunch

Posted on August 22, 2007 by Ed Poll

I was asked if the current credit crunch/crisis is affecting law firms.

My response was that the credit crunch, I think, is somewhat artificial … and folks that are being hurt are ones that extended themselves too far in the first place without a safety net …. Or ones whose business just evaporated without warning (although there usually is some kind of warning if observant).

Law firms with a line of credit will .... ...  likely be o.k. … especially if they followed my advice, set forth in my book, The Successful Lawyer-Banker Relationship: A LawBiz Management Special Report … if they created and have maintained a good relationship with their banker.  They may face a higher interest rate, depending on circumstances, than they paid before, but they will still be able to get the line of credit. Sometimes just getting the service (or line of credit) is what you want and you ignore the niceties of the cost, especially when you're talking about a relatively small amount such 1% or less differential.

That's on the supply side. On the demand side, some law firms may be impacted by their clients having financial difficulties. Imagine what happens when a good client suddenly goes out of business! Now, YOU have less revenue ... and therefore less net income. That could be a serious issue for a number of law firms. Also, before you get to the final harrah, your clients may become "slow pay" and in some cases "no pay."  The law firm must monitor its own financial circumstances very closely to avoid working for clients who can't pay .. Extended waiting for collection of your fees is not acceptable.
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