As the year comes to a close, lawyers face their least favorite annual stressor: End-of-year collection from slow-to-pay clients. Unfortunately, delays are plenty. According to Burford’s guide on year-end finance for law firms, law firm leaders report heightened concern about end-of-year collections—and 57% say they would be willing to reduce their bills in exchange for faster payment.
Why is end-of-year fee acceleration important?
As most law firms operate under cash-based accounting rules, the end-of-year collection process is crucial. Although the bulk of this burden rests on the shoulders of hourly fee firms, no lawyer is immune from the pressure to collect as much revenue as possible before December 31. Meanwhile, clients face their own internal pressures and—in what remains a buyer’s market for legal services—maintain the upper hand. Late payments, disputed bills and expected discounts follow. The process is stressful and can strain firm-client relationships.
Burford offers an alternative option that provides relief for both parties: Year-end fee acceleration.
How does fee acceleration work?
Fee acceleration maximizes end-of year profits and preserves valuable client relationships. Burford purchases a portion of a firm’s outstanding receivables—including both unpaid time already billed to clients and WIP—allowing the firm to convert its receivables into cash. Burford contracts with the law firm to purchase AR/WIP but remains completely invisible to the firm’s clients and fee acceleration reduces the need to offer larger discounts to clients.
An AmLaw 50 firm wanted to recognize as much revenue as possible by the end of the current year. Starting in November, Burford worked with the firm to identify billed time and WIP that would likely be outstanding at year end, then negotiated a fixed discount rate for this pool of receivables. With terms and pricing set, Burford and the client waited until the last days of the year to determine the final deal size. On December 31, the firm finalized the amount of outstanding receivables it wanted to sell; deal documents were executed; and Burford wired the sale price to the firm, ensuring receipt of this cash – well into the eight figures—before year end.
For the next several months, the law firm went about its normal collections process with its clients, remitting the purchased fees over to Burford after collection. No clients were ever made aware of Burford’s involvement.
What are the benefits of fee acceleration?
For law firms, there are four key benefits of year-end fee acceleration:
- Preserve client relationships: The firm’s collection process is not disrupted, and lawyers avoid pushing valuable clients for payment.
- Recognize revenue immediately: With Burford’s financing, the firm can recognize revenue without taking on debt.
- Skip the discounts: Burford’s capital is generally cheaper than the discounts offered to clients in exchange for payment.
- Non-recourse financing agreement: The firm will not have to repay Burford if the client fails to pay.
Choosing fee acceleration preserves the firm’s bottom line and client relationships, and it allows lawyers spend their time being lawyers—not bill collectors.
As the books close, firms can eliminate the common frustrations—delayed payments, damaged client relationships and lower profits—that often come with the collection process through fee acceleration. Fee acceleration is a streamlined solution offered by Burford that alleviates the unnecessary frustrations of collection and counsel payment.
This article was originally published on Burford’s website on December 04, 2019, and was updated on November 02, 2022.