Law was high on Knill's summer shopping list, and he has held talks with the player.
"We've spoken to Nicky but as of yet haven't done anything to proceed that," Knill told BBC Radio Humberside.
"He has some other options so we're monitoring it at the moment. He's a good player, and I've liked Nicky for a long time. I'm hopeful we can do something but there's a stumbling block with the money at the moment."
Despite the setback with Law, Knill is confident of adding to his squad this week – with at least one player agreeing to join, although he will not sign the contract until returning from a holiday.