• Professional services firms a better credit risk than any time since pre-financial crisis
The legal and accountancy professions are well on the road to recovery, with bank writeoffs on loans to professional services firms the lowest since the credit crunch, says LDF, a leading finance provider.
Figures show that UK banks wrote off £227 million of lending to law firms, accountancy practices and other professional services firms last year*, down from £252 million the year before, and the lowest levels since 2008.
Write offs on loans to professional services businesses peaked in 2009, when £320million of bank debt was written off.
By contrast, bank write-offs of loans to other businesses** increased to £5.96billion in 2014 from £5.35 billion in 2013.
LDF says that the figures reflect a burgeoning recovery in the professional services sector, long seen as an area in which the UK is a genuine world leader.
Law and accountancy firms on the road to recovery as loan writeoffs lowest since credit crunch
Peter Alderson, Managing Director of LDF says:
"The UK can be justifiably proud of its world-class legal and accountancy sectors, and these figures illustrate just how robust their recovery has been since the financial crisis.
"Law firms and accountancy practices have had to cope with a number of sector-specific challenges in the last few years, on top of the pressures of the recession.
"These figures suggest that the steps firms have been taking to secure their financial positions and shore up profitability in the face of these issues are paying off. Their reputation for creditworthiness was knocked by a couple of high-profile failures, but the reality is that these sectors now have a far better financial strength than many other types of businesses."
LDF explains that law firms have had to grapple with some significant changes in recent years such as cuts to Legal Aid, reforms to no-win, no-fee arrangements and increased competition in as a result of the Legal Services Act, which opened up the provision of legal advice to businesses outside the legal sector.
Accountants have had to prepare themselves for the impact of new rules allowing more business to choose whether or not to carry out an audit, in addition to a downturn in consulting and transactional work as a result of the recession.
Peter Alderson continues, "Law firms and accountants have had to take a long, hard look at their business models in the last few years to identify where vulnerabilities lay and take decisive action accordingly, through changing their emphasis on particular practice areas, restructuring their businesses or merging.
"However, while these figures indicate that the professional services sector is now on a far firmer financial footing, it remains to be seen how quickly this will impact on boosting levels of bank lending."
He adds, "As professional services firms have increasingly been thinking outside the box in terms of running their businesses more efficiently and sustainably, so more and more have begun to consider how alternative forms of finance can meet their needs."
LDF says that it is seeing growing numbers of law firms, accountancy practices and other professional services businesses turning to alternative finance solutions to help manage cashflow, spread the cost of major tax bills and cover other investment expenditure, in place of bank loans and overdrafts.
* Unincorporated businesses, year to 31 December
**Private non-financial corporations
LDF is one of the UK's leading commercial finance groups, providing loan and lease solutions to a broad spectrum of both corporate and professional businesses.