Challenge: Slow-to-pay clients damaged firm's ability to pay year-end commitments
A global law firm was faced with short-term—but significant—cash flow problems as the fourth quarter ended and it waited for outstanding receivables to be paid. Unable to draw down its bank line at the end of the year, the firm was confronted with a difficult choice: Hold off on paying year-end commitments or risk a cash shortfall that threatened the firm’s solvency.
Solution: $30 million purchase of outstanding hourly receivables
To accelerate the firm’s payment, Burford purchased $30 million of a firm’s outstanding hourly fee receivables—allowing the firm to recognize the revenue it received immediately, without taking on debt and regardless of when clients paid outstanding bills.
For a relatively low cost of capital, the fee acceleration ensured the firm would have the capital it needed at the end of the year and reduced the need to offer larger discounts to clients in exchange for payment, or to undermine valuable client relationships with an unseemly push for collection. The firm will not have to repay Burford if the clients fail to pay, thus de-risking its outstanding receivables.
Impact: Upfront cash for financing obligations, preserving firm profits
The firm used the funds to support operations and cover cash-intensive end-of-year financing obligations, such as partner profit shares and guaranteed cash payments, partner retirements and associate and employee bonuses.