In recent years, law firm hourly rates have grown as litigation budgets have continued to shrink, making legal cost management a persistent issue for GCs and CFOs. In fact, Burford’s 2017 Litigation Finance Survey revealed that nearly seven out of ten in-house respondents cited it as an urgent issue that requires innovative solutions from their outside counsel. A further six out of ten corporates reported that the more law firms innovate how they finance their firms, the more nimble they will be in serving clients.
So, how can law firms meet the clear client demand for financial innovation? Legal finance offers one solution.
In situations where a client has a strong case but limited financial means, law firms can secure single-case litigation financing as an alternative to either taking the case on risk or offering discounted rates. The firm or client can use the pending commercial litigation or arbitration to secure non-recourse funding that can be used to pay for legal fees or expenses associated with pursuing the matter.
By working with Burford to secure the capital needed to pursue the matter to resolution, the firm receives the fees to which it’s entitled, and the client doesn’t have to worry about being forced to make decisions because funds are running low.
Traditional single-case financing can help law firms come to financial terms with existing clients, but firms increasingly are seeking solutions that can give the firm a competitive advantage as they seek out new clients and business—including portfolio financing.
Portfolio financing uses a group of cases as collateral to provide capital that can be used to fund matters in the portfolio or as operating capital for the firm. While most portfolios are based on existing cases, a growing number of firms are exploring portfolios based on future matters. For future cases, or “going forward” portfolios, Burford commits capital to be put toward new matters as the firm vets and chooses to take them on full or partial contingency. Terms are negotiated in advance along with criteria for which types of cases the firm will consider for the portfolio.
With a going forward portfolio in place, the firm can pitch for a big litigation knowing it has a funder in place to share risk and on what terms, and is able to offer clients a complete solution for financing fees and/or expenses without a separate, time-consuming negotiation between funder and client.
Most law firms utilize cash-basis accounting, which means that earned fees that are not collected do not contribute to a firm’s performance within a given accounting period. To ensure accounting results accurately reflect the firm’s success, many firms put pressure on clients to pay before the end of the year—which can jeopardize valuable relationships.
As an alternative to the year-end collection cycle, Burford can purchase a portion of a firm’s outstanding hourly or contingent-fee receivables—allowing the firm to immediately recognize the revenue it receives. Fee acceleration reduces the need to offer larger discounts to clients in exchange for payment, or to undermine valuable client relationships with collection pushes.
For law firms with collection delays and clients facing budgetary pressures, legal finance is one solution that meets client demand for innovation without sacrificing firm profits. Financing comes in a variety of forms and can be tailored to meet the needs of the firm or client.