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What are lock-up days and how are they calculated?
Lock-up days measure how long cash is tied up between doing work and receiving payment. It equals WIP days plus debtor days. WIP days is unbilled work divided by billings, and debtor days is receivables divided by billings, each multiplied by the days in the period.
Formula in words: (unbilled WIP + trade receivables) divided by billings in the period, multiplied by days in the period.
Example: 60,000 WIP and 90,000 receivables against 300,000 billed over 90 days gives (150,000 / 300,000) x 90 = 45 lock-up days.
It matters because long lock-up means the firm funds its clients' work.
Commonly misread:
- Using different billing periods for WIP and receivables.
- Looking at the total without seeing whether the delay is in invoicing or in collection.
Track the two parts separately.
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