A TRAVELEX WHITEPAPER
LAW FIRMS IN THE NEW ECONOMY
The challenge of a New Economy –
Impact of the global recession on Law firms
June 2010
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LAW FIRMS IN THE NEW ECONOMY
A TRAVELEX WHITEPAPER
The financial crisis had a dramatic impact
on the global legal community. Traditionally,
most law firms have been adverse to
change, but global expansion and the
increased use of technology to drive
efficiency meant that law firms have been
forced to adapt to a rapidly evolving and
increasingly commercialised environment.
Research by magazine Legal Business in
2007 found that the leading concern for law
firms in the new economy was the number of
new risks they faced.
The crisis hit the community a lot harder than
it had probably expected, with closures 26
per cent higher than usual throughout 2008
and 2009. Even the usually untouchable
Magic Circle was affected, with some larger
firms having to ask graduates to voluntarily
defer their training contracts.
In terms of business strategy, 47 per cent of
the lawyers surveyed were concerned about
client liquidity or risk of bad debt and 28
per cent were worried about credit or other
financial problems.
Four out of five of the top 100 leading UK law
firms believed the recession has increased
the number of risks they face.
LAW FIRMS IN THE NEW ECONOMY
A TRAVELEX WHITEPAPER
Impact of adverse currency
movements
The recession also flagged an issue that
had previously not been a problem for most
law firms – currency volatility. Before the
recession, most law firms were completely
unaware of their exposure to currency volatility
and how it could impact on their bottom line
profitability. This is hardly surprising, given
that if the pound did move, it was usually
within fairly stable ranges and law firms had
adequate pricing strategies to protect them
against market movements.
During the recession however, the pound’s
value plummeted as the UK fell deep and hard
into recession. In 6 months, it plunged 26%
against the dollar, moving from the highs of $2
to the historical lows of $1.40. Nobody could
predict where it would settle as it rose and fell
dramatically over the course of the year.
Law firms working with offshore associates,
operating overseas offices or internationally
were particularly affected. If a UK law firm is
commissioned by a client to do some work
in a foreign country, they will usually engage
with their overseas associate or one of their
international offices to conduct the work on
their behalf.
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Telephone: 0845 301 5 476 [email protected]
In the case of overseas associates, they bill the
UK law firm and these costs are charged on to
the client. The invoice may have some foreign
currency exposure if the foreign associate
invoices in their home currency. The UK firm
then has to apply a notional exchange rate to
this invoice in Pounds Sterling, so they can
create a bill for their UK client. Dependent on
their settlement model, the UK firm then sends
the payment back to the overseas firm in some
cases before being paid by their customer.
Before the recession, a firm’s visibility in to
their exposure to market movements was
often masked by their pricing approaches.
But with the pound fluctuating so violently
throughout the recession, bottom line
profitability was seriously impacted and the
issue came to the forefront. Often, there was
an adverse currency movement in the time
since the client paid the bill and the UK law
firm sent the payment back to the overseas
associate. This left the UK firm with a deficit
as their pricing strategies failed to protect
them against market volatility. The firm then
had a tough choice – to either re-bill the client
(thereby putting the relationship at risk), or
cover the shortfall themselves (thereby eroding
profit margins).
Traditional pricing strategies such as currency
buffers have been typically employed to
protect against volatility, but in the recent crisis,
we have seen currency movements that have
made these currency buffers ineffective as a
protective method.
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LAW FIRMS IN THE NEW ECONOMY
A TRAVELEX WHITEPAPER
LAW FIRMS IN THE NEW ECONOMY
A TRAVELEX WHITEPAPER
Risk Management
New opportunities
Client-centric strategies
Since the recession, law firms have sought
to embrace these challenges and have
increasingly thrust risk management to the
forefront of their agenda. Many more of our
legal clients are beginning to incorporate more
commercial business behaviour into their
approaches, having become more sensitive
to the negative impact that market movements
can have on their bottom line profitability.
It’s not just the recession that has had an
impact on the financial behaviour of the legal
community. New regulations such as the Legal
Services Act of 2007 have forced law firms
to focus more on the consumer. Serving to
open up the legal sector, the act has sought to
liberalise and regulate the market in order to
encourage more competition.
Since the recession, firms have begun to
embrace more client-centric strategies,
removing legacy paper-based records and
replacing them with better CRM and PMS
systems and extranet services that have
resulted in e-billing and automated electronic
deal bibles.
And it’s not just risk-management as a strategy
that has evolved. In many practices, its dayto-day implementation has shifted to the
General Counsel (GC), whose role in the firm
has shifted into a more commercial advisory
role. The GCs are under even more internal
pressure to deliver better value, efficiency and
cost reductions in the firm’s services. Working
together with the finance team to make the
firm more commercially minded, the whole
practice has had to become more aware to the
potential threats on profit margins. As a result,
the whole practice has become more involved
in risk management and best-practice finance
strategies.
Telephone: 0845 301 5 476 [email protected]
A more competitive environment has really
forced firms to place client experience at
the top of their priorities. With so much
competition, bad feedback about a firm could
jeopardise its survival at such a critical time. To
really be able to compete in the new economy,
the firm’s approach needs to be holistic and
all-encompassing.
It cannot just be the client facing teams that
implement consumer centric strategies – it
must also filter down to the financial teams
including those handling the payments
process. Implementing a more streamline and
efficient process can only enhance existing
client relationships.
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Technology has been crucial in underpinning
best practices. Recognising the unique
external challenges that today’s law firm’s
face; Travelex developed a software solution
tailored to address these needs.
Global Pay Legal by Travelex allows firms to
lock into a payment rate today for an invoice that
they can expect to pay in two, three or even four
month’s time – i.e. as soon as the client remits
payment to them. The firm can bill the client the
exact and correct amount, and in the currency
of their choice. When the customer pays, the
payment can then be sent to the offshore
associate (who sent the initial invoice) without
any need for further exchange rate adjustments
or risks.
Telephone: 0845 301 5 476 [email protected]
There are no foreign exchange risks, no need
for manual reconciliation or adjustment, and
the cash stays with the law firm until it is ready
to release payment.
The Pound Sterling and offshore payments
match and there are no cash flow implications
or shortfalls.
Most current payment systems being used by
law firms do not offer this type of flexibility, nor
have they been tailored to their requirements.
As a foreign exchange payments specialist
with over 500 legal clients, Travelex recognises
the unique issues facing law firms in the new
economy and works with them to address
their challenges. In this volatile currency
market, legal firms are being forced to reduce
their headcount and increasingly outsource
overseas. There seems to be no better time
for firms to review ’Software as a Service’
payment technology and look to solutions that
require no capital expenditure, can help protect
their bottom line profitability and offer a better
service to their clients.
www.travelexbusiness.com
LAW FIRMS IN THE NEW ECONOMY
A TRAVELEX WHITEPAPER
About Travelex
In an increasingly global economy, the ability to move funds around the world quickly and reliably
is of growing importance for businesses of all sizes. Travelex has evolved to meet those needs
– transforming over the last 30 years from a currency exchange operator to a strategic payments
provider, working with over 35,000 businesses.
Through the course of its evolution Travelex has become the world’s leading non-bank commercial
payments and foreign exchange business, processing payments to 1 million beneficiaries annually
through its global banking network, which provides immediate, reliable delivery and receipt of outgoing
and incoming funds.
Contact Travelex today
Call us today on 0845 301 5476 to arrange a demonstration or email us at
[email protected]
Telephone: 0845 301 5 476 [email protected]
www.travelexbusiness.com
Telephone: 0845 301 5 476 [email protected]
www.travelexbusiness.com