What’s the difference between a firm that’s good and great? It might well be your working capital team. Totum Consultant Carolyn Beckford Balogun explores the world of working capital in the professional services sector.

Effective revenue management has never been more important. Professional services firms are facing the highest interest rates in years, larger HMRC bills following a change to the way equity partners are taxed, and global recessionary fears that make securing work more challenging. But in an uncertain climate, those firms that source and retain talented working capital teams can unlock cash, maximise profit and support sustained growth.

At Totum, we have gained considerable expertise in working with firms to secure the right leaders and individuals to improve performance and processes across financial operations, including working capital management (WCM). We have seen first-hand how roles in this team have changed, with those candidates that are most in demand taking a strategic view of WCM, demonstrating commercial expertise, interpersonal and relationship-building skills, and an ability to plan ahead to understand and mitigate future credit losses.

In this piece, we ask experts and leaders in working capital about the changes they have seen in this vital function, and we consider the priorities for firms wishing to shape these teams into the future.

Working capital: Call to action

We know that good management of working capital can unlock revenue and dramatically improve a firm’s prospects. But there may be particularly pressing reasons to act on this fact now. Recent research from both The Lawyer and PwC’s ‘Law Firm Survey 2022’ show that lockup figures across top-100 UK firms are getting worse. According to the PwC survey, firms in their top-10 banding added 16 days to their annual lockup in 2022 – with all other law-firm bandings moving in the same direction. That equates to firms being unable to access millions of pounds each year.

Meanwhile, clients are facing the same environmental pressures, so they are only further seeking to drive down costs, while demanding more favourable payment terms. ‘It has become harder for partners to negotiate and win work, the sector is suffering from the macro-economic environment with clients pushing harder for end of case invoicing and extended payment terms, impacting ageing of WIP and a downstream impact on cash collection. Firms need to adapt to the needs of clients in terms of billing and cash protocols and requirements,’ says Victoria Hopkins, an expert in finance operations who was Director of Finance Operations & Transformation at DWF for over 12 years.

‘The WCM landscape has had to change given the recent global challenges and continuing turbulent times,’ agrees Steven Groombridge, Associate Director, Global Collections, at Baker McKenzie. ‘Realisation that additional profits need to come from alternative avenues, other than just business growth has been key. Pricing had been identified as one of the main areas, with lockup reduction another that has immediate impact on the bottom line.’

In response to change, we at Totum have seen working capital teams becoming larger and boasting a wealth of specialist skills, including client/partner facing professionals who are proactive in developing better processes and relationships across revenue streams. As Steven says, the ‘need to be “trusted advisors” in the end-to-end process is key.’

‘Our team is growing because you need to source the right people to tackle the challenges of growing competition,’ says Dan Cardozo, Finance Operations Manager at Kilburn & Strode. ‘Working capital teams include many specialists who are recognised professionals – and who can help partners face increased demands from clients, often from client procurement teams. Partners rely on us to guide them through the process and, in response, we need to find the right people to deliver.’

Steven describes new or adapted roles in WCM in core areas around ebilling, rate structures and profitability analysis/review. He has seen the growth of ‘Finance Committees’, bringing finance teams, partners and other senior management committees closer together, and a rising number of ‘finance centres’ in offshored and low-cost offices for non-partner-facing roles.

‘Client requirements have become more complex by nature and challenge operational gearing within the Finance Operations function,’ says Victoria. Improving efficiency is about end-to-end lifecycle transformation, she adds. ‘The process and value leakage points in this sector are phenomenal and need constant challenge and review.’

Structured for strategyThere are multiple responsibilities for those heading up these teams, including: designing and implementing new revenue management processes, designing innovative solutions across the revenue lifecycle, building relationships with partners and clients, as well as looking after the team, both as individuals and as a group. Meeting a fast-widening remit in more uncertain times means leaders must build teams that are strategic, proactive and agile.

Steven is currently at his fifth law firm since 2000 and has huge experience in structuring working capital teams. He suggests splitting the WCM cycle into ‘pillars’, each requiring a good leader, who works alongside a Working Capital Manager, who is the outward face of the team. In a smaller firm these roles might be combined or comprise individual teams in larger firms– global firms necessarily making it more complex.

‘The main thing to remember is that small simple reshapes are often better than a large restructure, giving opportunities along the way, and creating a structure that allows growth and flexibility as the business may change,’ he says. ‘Anything ‘fixed’ in its shape may suffer with any highs/lows for the business, causes often unnecessary upheaval and means a constant recruitment/training programme that takes away from the efficiencies that you’ve worked so hard to create.’

While Victoria thinks there is no magic formula for structuring working capital teams, as each firm’s strategy, shape and size will inform what is needed, she suggests a few factors to consider:

• • Explore working alongside a BPO for managing transactional volume areas. This mitigates attrition risk and creates the capacity to attract and retain top talent who can drive change and transformation work.

• • Build a data-driven insight / finance operational management information (MI) team that sits in the Working Capital function, with the ability to really understand, interpret and tell the performance story across the function and wider business.

• • Centralise and standardise onboarding clients. Whether this sits in the business or the operations function, it is the starting point for a successful matter lifecycle process.

• • Have a team of people who focus on billing readiness and data quality.

• • Ensure that teams are integrated with partnership and fee earning teams – ‘The connectivity and respect for the operations teams is incredibly important when it comes to driving the right culture and fee earner disciplines’, says Victoria.

Team integration: team efficiency

These relatively complex team structures, especially in larger firms, mean that working capital managers and leaders are leading teams within teams. ‘From start to finish, you issue your invoices and your end goal is to get those invoices paid,’ says Dan. ‘But in between that, you have different teams focused on billing, accounts payable, credit control, and ebilling. They’re all separate functions – making it work as a whole is difficult and yet very important.’

For Steven, improving efficiency across the team comes down to getting the end-to-end processes right, which can then lead on to wider changes in the business. ‘It needs a time and motion study review of all current processes and for these to be documented, and in a timeline,’ he says. ‘It needs the matter inception, and matter maintenance (core data) to be great (including timekeeper set up, phase/task and ebilling setup), and it needs each different part of this cycle to work closely on crossover points to ensure an efficient flow. Without the basics being visible, measurable and owning total accountability for them, then the rest is difficult to change.’

The key improvement following internal review comes from partner ‘incentives’ around lockup. ‘Most top law firms now withhold partners distributions based on lockup, due to “underperformance”,’ says Steven. ‘This can (and has) made tens of millions worth of dollars to a business, even with the same baseline revenue – and it turns your revenue controllers and credit controllers into very important people for the partners. This flips the “nagging” conversations of WIP and debt into “How can we best help you reduce your lockup?” (good cop) conversations.’

Victoria adds that client and matter data are vital – ‘proactive population and control points through the working capital lifecycle will support improved lockup’ – as is understanding the nature of the transactions you manage. ‘Standardisation has its place but the nuances of what type of work you do for clients really does dictate your target operating model and business processes that sit underneath,’ she says.

As part of this, she particularly highlights the value of a Finance MI team, which can provide high quality data-driven insight to help drive important decisions and pinpoint areas of focus to get the right level of buy-in and fee-earner compliance.

Cross-pollinating talent: Sector similarities and differences

That WCM teams now boast such sophisticated strategic thinking is testament to the breadth and depth of experience offered by today’s working capital professionals. 

Before joining patent firm Kilburn & Strode, for instance, Dan worked in revenue management for both global and US law firms including Linklaters, Taylor Wessing and McDermott, Will & Emery. All gave him unique insights into business efficiency that he can bring to bear in the development of strong financial processes at Kilburn & Strode.

‘There are massive differences between IP and corporate or traditional law. To be a patent attorney you need a high-level degree in a technical field such as chemistry, biology, engineering or physics; our lawyers here are borderline geniuses, they work on unbelievable projects. It is up to us as financial professionals to help guide them through the financial aspects that make up a profitable law firm ensuring we are maximising profitable growth from their endeavours,’ he says.

In addition, patent law is built on personal relationships, with work typically referred on in a reciprocal way, which prioritises longstanding relationships. Payment can become a matter of trust, rather than process, making its management more challenging.

Dan’s experience, however, means that he can bring deep technical expertise to the processes needed to support revenue generation (his team manages an average of 3,600 invoices a month, the high volume of which is typical of the patent industry). And he can combine that with a proven ability to collaborate with partners, directors, clients and colleagues, often across global offices, which is invaluable to working in a patent culture centered on maintaining and building relationships.

Indeed, his people-oriented mindset is clear when he stresses the importance of the human element in a high-functioning working capital team. ‘When I got here it was all very siloed and we spent a lot of time building a one team culture,’ he says. ‘Team days, when we’re all in the office together, and regular meetings between teams ensures we are all connected at different times of the month. I think it should be a family environment in which we look out for each other if something goes wrong. We should learn from mistakes rather than apportion blame.’

Recruitment and retention

A supportive culture is also vital to attracting and retaining talent, given the shortage of candidates with the right skills. Today’s hybrid workplace presents opportunities to broaden this small talent pool, but it also creates fresh challenges, splitting teams across locations when collaboration is critical to streamline end-to-end processes.

‘The homeworking/flex/hybrid working has changed the landscape when it comes to sourcing candidates,’ says Steven. ‘Wherever you base your team(s) it is imperative to ensure everyone knows each other’s roles, and there is clear, open and regular communication throughout… I truly believe there is a place for everyone in this new world of working. Office based staff, home working roles, and those that are based in centers/offshore/low-cost office models.’

All agree that sourcing and retaining talent is difficult. ‘Competition is fierce for people with the right specialist skills, and that’s reflected in the salaries, which have grown exponentially, because firms need to get the right people,’ says Dan. ‘And then firms have to work hard to retain them because they are so hard to come by now.’

‘The recruitment market goes through cycles and we’re in a situation now where mitigating attrition risk in working capital roles is important,’ agrees Victoria. ‘Retaining talent and career development are hot topics. We hear lots of feedback about automation, the need to make change and to have exciting and diverse roles.’

Trusted advisors

Into the future, working capital teams will continue to be vital to managing a firm’s revenue effectively. Roles across this function go far beyond transactional processes – working capital teams are made up of highly strategic, specialist professionals who deeply understand the client base, are data-driven, understand and help drive strategic objectives, can nurture and build relationships, and act as trusted advisors to partners.

These are roles that are highly valued and will only grow in importance as firms navigate more uncertain times, in which the strength of a firm’s working capital team can make a huge difference to ensuring a firm’s continued success.

To find out more about roles and opportunities in working capital teams across the professional services sector, contact Carolyn Beckford Balogun at [email protected].