Funding for Attorney s and Law Firms6585882
For a court that practices contingent litigation managing cash flow is very important. Sadly managing ones cash flow is an afterthought for the majority of trial lawyers. Cash flow is very sporadic since they only get paid when cases are successfully concluded. With lots of cases taking several years to bring to conclusion projecting ones cashflow can be a daunting task.
Contingent firms typically advance all the cost of litigation upfront in substitution for a percentage from the recovery. Inside a contingent case a company may invest a huge selection of attorney hours and tens of thousands of dollars in to a case. If a firm loses an incident it loses not just its time but the cash dedicated to hard costs also. It worsens, a firm isn't allowed to deduct the money they have bound is case costs. Furthermore they have to fund the amount of money up front nevertheless they have to fund it with after tax dollars. Chances are they repeat the cycle and plow the fees from successful cases in to the next group of cases.
The missing ingredient in improving cash flow for most contingent law offices is something most businesses have already been utilizing for decades. Leverage. Most lawyers have funded costs up front since they started, only because that's how it has always been done.
A revolving credit line can be one of the main tools in the plaintiff lawyers fight for justice. By using borrowed money to fund litigation expenses a firm can remove the negative tax consequences of self funding. The firm actually realizes the income it is receiving in fees. Any interest a strong pays may be offset by having the money that was tied up in case costs readily available for firm expansion or outside investments. But the biggest advantage has stopped being using after tax dollars to fund case development expenses.
We're in a time where trial lawyers have more options than ever before when it comes to financing their practice, from traditional banks and specialty financial institutions to legal finance consultants. Contingent lawyers can and must pay attention to the important thing if they need to continue helping their customers.