What it means
Lock-up is the favoured measure in professional services: law firms, agencies, consultancies and accountancy practices. Staff costs go out every month, but the fee for that work may not be billed for weeks and not paid for weeks after that.
Everything in between is cash locked up. The measure splits neatly into two halves with different owners.
Work in progress days are driven by the delivery team, who decide how promptly work gets billed, while debtor days belong to whoever chases payment. Blaming the credit controller for a lock-up problem that starts with late billing is a common and expensive error.
It matters because lock-up is usually the single largest use of cash in a people-based business. Every extra ten days of lock-up on $10,000,000 of annual revenue ties up roughly $274,000 that could otherwise sit in the bank or fund a new hire.
Partners often discover the money is not missing at all, it is simply sitting in the ledger as unbilled time. Reducing lock-up rarely needs anything clever.
Bill monthly rather than at project end, agree payment terms in writing before work starts, and put a named person on the phone the day an invoice goes overdue. Lock-up also shapes how a firm prices its work.
If a project will sit unbilled for four months, the fee has to carry the cost of funding that gap, which is why experienced firms build interim billing into the proposal itself. Treating it as an afterthought leaves the client setting the payment rhythm.
In practice
Real-world examples.
Example
A litigation practice runs 118 lock-up days because matters are billed only on conclusion. Introducing monthly interim billing on cases running longer than 90 days cuts work in progress days by a third within two quarters.
Example
An engineering consultancy discovers that a single client owes $480,000 across four overdue invoices, accounting for nearly a quarter of total lock-up. The managing director stops new work for that client until the account is brought current.
Example
A branding agency ties partner bonuses to lock-up days rather than fees billed. Within a year the average time between finishing a project and issuing the invoice falls from 19 days to 4, and the overdraft that had been permanently drawn goes unused for the first time in three years.
Think of it
“Cash lock-up is money you have but can't touch-restricted for specific purposes.
Formula
Calculation
Lock-up days = (Work in progress + Unpaid invoices) / (Annual revenue / 365).
A design agency bills $7,300,000 a year, which is $20,000 of revenue a day. At the quarter end it carries $400,000 of unbilled work in progress and $1,000,000 of unpaid invoices, so $1,400,000 in total. Lock-up days = $1,400,000 / $20,000 = 70 days. Cutting that to 55 days would release $300,000 of cash, because 15 days x $20,000 = $300,000 goes straight back into the bank.Case study
Seen in the real world.
Calderstone Advisory is an entirely fictional management consultancy, used here as an illustrative example of lock-up in action. It grew fees by 30% in a year and still had to ask the bank for an overdraft extension, which the partners found baffling given a healthy profit figure.
The analysis was blunt. Lock-up had risen from 62 days to 94, so growth had pushed roughly $900,000 of extra cash into unbilled work and unpaid invoices.
Two changes fixed most of it: engagement letters now required monthly billing, and no consultant could start work on a new phase while the previous phase sat unbilled. In this illustrative case, lock-up days became the number reviewed first at every partner meeting.
Within two quarters the figure was back to 68 days, and the overdraft extension was never drawn. Nothing about the firm's pricing or win rate had changed, which is the point worth taking from this fictional example: the cash problem was created entirely by the order in which the firm did its own paperwork.
Watch out
Common mistakes.
- Measuring only debtor days and calling it lock-up. Ignoring unbilled work in progress hides the half of the problem the delivery team controls.
- Comparing lock-up days across very different businesses. A retailer paid at the till and a consultancy billing on milestones are not measuring the same thing.
- Assuming a falling lock-up figure is always good news. It can fall simply because revenue rose faster than the balances, while the actual cash tied up went up.
Questions
People also ask.
What is a reasonable lock-up target?
Most professional services firms aim for 60 to 90 days, though the right figure depends on billing cycles and client size.
Does lock-up include disbursements paid on a client's behalf?
Yes, if the business has paid the money out and not yet recovered it, that cash is locked up like any other.
How quickly can lock-up be reduced?
Billing discipline can take 10 to 15 days out within a quarter, while collection improvements typically show up one payment cycle later.
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