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Accounting and Financial Planning for Law FirmsLJN NewslettersNewsSections

Working Capital Issues for the Law Firm

By James D. Cotterman
December 27, 2007

Part One of a Two-Part Series

Working capital is about cash flow and the cash needs of your law firm. Simply put, it is the cash gap between when your firm pays for something and when the firm receives payment from the client. Ideally, a firm would receive client payment before incurring the costs, creating a negative cash gap situation. At one time Amazon.com worked on a negative cash gap process ' Amazon.com was paid by the consumer, by way of a credit card charge, before it had to pay its vendors for the purchased product and shipping. The law firm equivalent of a negative cash gap is retainers. 'Retail' law firms could also exploit the credit card mechanism exploited by Amazon.com.

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