5 minutes on... fees and expenses vs. monetization for in-house legal departments

Corporate legal departments are responsible for managing company legal budgets, and increasingly they are also challenged to add value to the business by unlocking legal assets. Finance from Burford helps legal departments do both without adding risk. 

Below, we take five minutes to explore two types of legal finance products: Fees and expenses and monetization, which provide legal departments with P&L and cash flow solutions, respectively. 

Fees and expenses: A P&L solution  

52% of in-house lawyers say their company has chosen to forgo meritorious legal claims due to the impact of legal expenses on the bottom line.

In its simplest form, fees and expenses legal finance is capital provided on a single-case basis to pay for the costs and expenses associated with ongoing litigation or arbitration in exchange for the investment back plus a multiple or percentage of the ultimate award or settlement. Because of the non-recourse nature of the capital, neither the firm nor the client is exposed to downside risk if the case loses.

By assuming the cost and risk of litigation, fees and expenses financing transforms claims from burdensome expenses to assets with upside potential. As a result, clients can add value to their businesses. This approach fulfills the needs of companies that can’t afford or don’t want to pay their lawyers by the hour. Rather than pressuring its law firm of choice to take on this cost and risk or being forced to work with a different firm, companies can leverage legal finance as a hybrid or “synthetic contingency” that bridges the gap between their needs and those of their law firms.

Monetization: A cash flow solution

75% of in-house lawyers cite the ability to generate liquidity as one of the most important benefits of legal finance.

Monetization is the acceleration of a pending commercial claim or an uncollected judgment or award, bringing money into the business without the company needing to wait for legal processes to resolve.

Pending claims often represent vast latent value to the organization. Unfortunately, they carry a tremendous amount of uncertainty as to both outcome and timing—and because they are highly illiquid, traditional capital sources have been historically unable to assign asset value to them. Because legal finance providers have experience and expertise in assessing the value of legal assets, they can help companies unlock value through monetization.

Capital is provided upfront—offering immediate liquidity that may be used for virtually any business purpose. Unlike fees and expenses financing, in which money flows from the finance provider to pay lawyers as costs are incrementally incurred, capital provided through a monetization is provided in a lump sum upon investment and can be redirected to fund defensive positions in the legal department—or to build warehouses, hire staff, shore up corporate balance sheets or any other corporate purpose. As with traditional legal finance, the capital provider bears the risk of loss; if the claim is dismissed, the company keeps the capital provided with no obligation to repay. Monetization gives companies cash flow certainty by providing an injection of cash when it benefits the business—without waiting for the case to resolve.

The table below highlights the key differences between the two products:

Both monetization and fees and expenses can be provided on a portfolio basis. Portfolio financing is defined as a single investment in more than one case. Capital is provided to finance multiple matters with a law firm or with a client that has multiple cases with one or more law firms. As in single case financing, a portfolio investment is almost always non-recourse.

Burford made the industry’s first portfolio based investment in 2010, and in recent years portfolio-based capital facilities have increased significantly as law firms and companies need solutions not only for singular instances of financial need but also for reducing risk and cost across a range of litigation matters.

Learn more about how we work and explore the case studies below:

• Monetizing a pending claim to reduce borrowing costs
• Helping a FTSE 20 company move legal costs off balance sheet
• Helping a plaintiff work with its preferred counsel