Burford Capital Logo Light Burford Capital Logo Dark

Trends in legal finance: Finance more than fees

October 23, 2019

In January, we shared five ways law firms and business can leverage legal finance in 2017. We elaborate on these trends in legal finance in the following post and in posts to follow.

In the business of law, the focus tends to be on financing fees. But legal expenses from e-discovery to experts will pose an ever-greater burden. Burford helps corporate legal teams move these costs off balance sheets, and we help firms offer expense financing to their clients in conjunction with or separate from financing fees.

Corporate expense financing

Corporate legal teams face enormous pressure to manage costs—which can be a challenge given the unpredictable nature of litigation.

Innovative businesses can use expense financing to relieve legal budget pressure. Instead of bearing the burden of legal fees and expenses during the life of a case, companies can move those costs off balance sheet (and reduce the bottom line) by obtaining outside funding. Ultimately, businesses have an opportunity to be more profitable because they are spending less of their own money on litigation expenses than they otherwise would.

By financing a portion of legal expenses, businesses can prioritize their spending according to their goals, and reserve cash for their needs—whether retaining their legal team of choice or preserving capital for other business purposes.

Law firm expense financing

Case expenses can account for as much as 25% of a firm’s annual expenditures—but they don’t generate profit and generally are written off as a necessary cost of doing business.

Ambitious firms can use expense financing to:

  • Facilitate growth, liquidity and profitability
    Capital that would otherwise have been spent paying for expenses can be redirected to paying salaries for lawyers working on an expanded pool of cases; these hours can then earn multiples of cost in future fee awards.
  • Eliminate adverse tax consequences
    Unlike firm costs like salaries and overhead, case expenses are not tax deductible. With external financing, partners no longer have to contribute after-tax dollars to cover case costs, which increases firm profits.
  • Hedge risk
    An outside financier like Burford advances case expenses as they are incurred, on a non-recourse basis. Expenses are repaid only if cases are successful.
  • Bridge budget gap with hourly clients
    Expense financing lessens client fee fatigue by reducing the overall cost to clients in expense-heavy litigation.

How expense finance works

The process for obtaining expense financing is simple. The financier advances case expenses as they are incurred by the firm for a single case or pool of cases (and past expenses can also be reimbursed as part of a broader deal). The financier receives repayment only after the underlying matters achieve success or settlement.

For ambitious law firms and businesses with substantial legal costs, expense financing is a powerful tool.