Top lender urges law firms to embrace prudence

Royal Bank of Scotland (RBS) has told the Law Society Gazette it is still keen to lend to law firms after its lending policy was identified as a factor in last month’s demise of a Manchester firm.  RBS, one of the biggest lenders to the legal sector has warned that firms will have to be more accountable for their finances if they want to secure future investment.

This could be an opportunity for accountants to provide lawyers with sensible and prudential financial advice.

If I were still in public practice I would seize this opportunity with both hands.

A statement by administrator BDO following the collapse of boutique firm EOS Law said NatWest, part of the state-owned RBS group, had denied the firm’s request for additional funding ‘due to a change in the RBS group credit policy for law firms’. The bank, which had already provided £500,000 through a loan and overdraft facility, denied changing its policy but said that it has increased its scrutiny of how law firms run their businesses.

An RBS spokeswoman said: ‘We are holding firms accountable for the prudent financial management of their businesses. That involves requiring firms to be disciplined in their working capital management, regularly billing and collecting, having prudent levels of capital in the business, and not paying partners from debt when income has not been earned and converted to cash.’

EOS Law, founded by former DLA Piper partner Simon Woolley, folded last year owing a total of £2.3m, despite making a profit of almost £700,000 over its final two full financial years. Members or Partners drew a total of £563,000 in those years.

Viv Williams, chief executive of consultancy firm 360 Legal Group, said other law firms will be refused loans if there is evidence of overtrading and financial instability.

He said: ‘I have worked with all the banks in recent years and although some have a different attitude towards “support”, they generally wish to help firms if they are changing and taking professional advice. If firms will not address their WIP and debtor issues, and are undercapitalised and therefore overtrading within their facilities, then expect more of this in future.’

This story, in full, is here.

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Martin Pollins

Managing Director at One Smart Place

Martin Pollins is a Chartered Accountant and MBA with wide experience in corporate finance and business management. He has served on the boards of several companies, including those listed on the London Stock Exchange, AIM and OFEX. He is Chairman and Founder of OneSmartPlace and was a Council member of the Institute of Chartered Accountants in England and Wales from 1988 to 1996. He was managing partner of PRB Martin Pollins, based in Sussex, the first Accountancy firm to advertise on British television.He went on to create and launch the CharterGroup Partnership (the UK’s first Accountancy network) and then LawGroup UK (at the time, one of the largest networks of lawyers in the UK). In recent years, he helped to raise several £millions to fund British films such as The Da Vinci Code, Bridge of San Luis Rey, Head in the Clouds and Merchant of Venice with actors such as Charlize Theron, Robert De Niro, Al Pacino, F. Murray Abraham. Kathy Bates, Gabriel Byrne, Geraldine Chaplin, Tom Hanks, Ian McKellen, Audrey Tautou, Penélope Cruz, Steven Berkoff, Lynn Collins, Jeremy Irons, Joseph Fiennes and many more.

He has written over 700 business publications (see Glossaries at http://onesmartplace.com/resources/glossaries/) and is editor of Better Business Focus (see http://onesmartplace.com/resources/better-business-focus-magazine). His Blog, on a wide range of subjects can be found at: http://onesmartplace.com/blog/

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