Introduction — why cash flow matters for law firms

Solicitors often run tight working-capital cycles. Matters can generate large receipts that are paid only on completion, disbursements must be covered in advance, and payroll and rent are fixed monthly costs. When settlements or client funds are delayed by even a few weeks, salaries, rent and disbursements can be pushed into danger.

This guide explains the practical differences between overdrafts and revolving credit facilities (RCFs), helping you decide which is most likely to stabilise your firm’s cash flow. If you’d rather get tailored lender proposals, complete a short form for a free eligibility check and quote.

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Quick definitions: what is a revolving credit facility vs an overdraft?

What is an overdraft?

An overdraft is an agreed negative balance on your business current account up to a set limit. Interest is typically charged on the amount you use. Overdrafts are designed for short-term smoothing of daily cash flow — covering small timing gaps between inflows and outflows.

For law firms: overdrafts work well for occasional delays in client receipts, immediate disbursement needs or covering small peaks in payroll. They are usually simple to set up and require lighter reporting.

What is a revolving credit facility (RCF)?

An RCF is a committed line of credit you can draw, repay and redraw against during the facility term. It’s often set up as a separate facility (not just the business account) with defined covenants, commitment fees and a formal agreement.

For law firms: an RCF suits practices with recurring peaks, multiple matter overlaps or where management needs certainty that a borrowing line will be available across several months or years.

Key differences at a glance

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Detailed comparison — the 7 practical factors solicitors care about

1. Cash-flow flexibility & drawing mechanics

Overdrafts sit within your current account — drawing is immediate and familiar. RCFs are often separate agreements; drawing may require a notice or internal administrative step. For day-to-day float and last-minute disbursements, an overdraft wins. For repeated, predictable peaks (e.g., multiple completions each month) an RCF provides cleaner budgeting and certainty.

2. Cost structure — interest, fees and hidden charges

Overdrafts usually charge variable interest on what you use and may impose penalty rates for unarranged borrowing. RCFs typically include commitment fees (charged on the undrawn portion), utilisation margins, arrangement/legal fees and sometimes renewal fees. For small, infrequent borrowing an overdraft is usually cheaper; for larger, ongoing needs the per-pound cost of an RCF can be lower.

Rates vary by lender and firm profile — for accurate comparisons, get tailored quotes rather than relying on headline examples.

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3. Security & regulatory issues for solicitors

Smaller overdrafts may be unsecured. Larger RCFs are often secured against business assets or require personal guarantees. Importantly, client (trust) accounts must remain separate and are rarely acceptable as security. Lenders familiar with legal practices will discuss acceptable security that complies with professional rules — keep client account compliance front of mind.

4. Covenants, monitoring & administrative burden

Overdrafts usually mean light monitoring and occasional reviews. RCFs commonly require monthly or quarterly management accounts, forecasts and covenant testing. If you have in-house finance capability, covenants are manageable and provide discipline. Smaller firms with limited admin capacity may prefer overdrafts or a broker to manage lender reporting.

5. Renewal & availability risk

Overdrafts often renew annually and can be reduced at renewal. A genuinely committed multi-year RCF offers stronger certainty — but only if the commitment is explicit. During downturns lenders may reduce facilities; a committed RCF can be the difference between continuity and enforced cuts, but it comes at the price of covenants and documentation.

6. Suitability by firm size and activity

Micro practices with occasional timing gaps usually favour overdrafts. Growing regional practices and mid-sized firms with overlapping matters, regular disbursement needs and multiple completions benefit from RCFs or hybrid approaches (RCF + invoice finance). Example: a 15-fee-earner firm moved from repeat overdraft extensions to an RCF plus short-term invoice discounting to cover recurring peaks — the result was steadier cashflow and lower penalty costs.

7. Tax, accounting and reporting consequences

Interest is deductible as a business expense for corporation tax purposes. A secured RCF increases liabilities on the balance sheet; covenants affect auditor reporting. Always discuss facility structure with your accountant as lenders will ask for management accounts and forecasts when assessing your application.

Alternatives and hybrid solutions for solicitors

• Invoice finance (factoring/discounting): unlocks cash from billed work but has confidentiality and assignment considerations for solicitors.
• Bridging loans: short-term cover for a single transactional timing issue.
• Term loans: better for capital projects, not short-term smoothing.
• Hybrid approaches: overdraft for daily smoothing + RCF or invoice discounting for larger recurring peaks.

If you want to explore combinations, we can match your firm with lenders and brokers that arrange the right mixes of facilities.

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Practical checklist: how to choose between an overdraft and a revolving credit

Use this quick checklist to decide which route to discuss with lenders:

• Do your shortfalls tend to be small and infrequent?
• Are cash-flow peaks predictable and recurring?
• Do you need a committed multi-year line for certainty?
• Can you meet covenant/reporting requirements?
• What security can the firm realistically offer (excluding client accounts)?
• Does the firm have capacity to manage lender reporting?
• How cost-sensitive are you versus how much certainty you require?

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How UK Business Loans helps solicitors

We take a short enquiry and match your firm with lenders and brokers experienced in professional services. The process is:

1. Complete a 2‑minute enquiry form describing your firm’s needs.
2. We match you with relevant lenders and brokers.
3. Selected partners contact you with no‑obligation quotes.

We are an introducer — not a lender or regulated adviser. Submitting an enquiry is free and won’t affect credit scores. If you want to read more about finance options for solicitors, see our dedicated page on solicitors business loans.

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Case study (anonymised)

A regional firm with 15 fee-earners faced predictable monthly peaks from overlapping residential conveyancing completions. Repeated use of an overdraft led to higher interest and review risk. After discussing options with a broker, the practice secured a two-year revolving credit facility sized to cover average peak exposure and agreed quarterly covenant reporting. The result: lower monthly finance costs, reduced reliance on penalty overdraft usage and improved cash‑flow predictability.

Frequently asked questions

Which is cheaper — overdraft or revolving credit?

It depends. For brief, small gaps an overdraft is usually cheaper. For ongoing, larger borrowings an RCF often provides better per-pound economics once commitment and arrangement fees are spread out. Get lender quotes for accurate comparisons.

Can solicitors use client account funds as security?

Generally no — client (trust) accounts must be kept separate. Lenders will usually expect business assets, charge over company assets or personal guarantees. Always follow professional conduct rules when structuring security.

Will drawing an overdraft hurt my credit score?

Making an enquiry via UK Business Loans does not affect credit scores. Lenders may perform credit checks if you progress an application, which could be recorded.

Can I switch from an overdraft to a revolving facility later?

Yes — many firms upgrade once their borrowing needs grow or when they want greater certainty. Switching typically involves more documentation and possible security requirements.

What documents will lenders need?

Typical requests include management accounts, recent bank statements, tax returns, details of matters in progress and a cash‑flow forecast. RCFs commonly require more detailed forecasts and covenant information.

How quickly can I get a quote via UK Business Loans?

After you submit a short enquiry, lenders or brokers often respond within hours during business hours. Exact timing depends on the complexity of your request and lenders’ processes.

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Final steps — get matched to lenders who understand solicitors

If you want certainty and plan to borrow at scale (£10,000+), discuss a revolving facility with lenders who know legal practice finance. If you need low‑administration short-term smoothing, an overdraft may be fine. If in doubt, get tailored quotes — it’s free and won’t affect your credit score.

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