Funding for Attorney s and Law Firms5009498
For a attorney at law that practices contingent litigation managing cashflow is very important. Sadly managing ones cash flow is an afterthought for the majority of trial lawyers. Income is very sporadic as they only receive money when cases are successfully concluded. With lots of cases taking many years to bring to conclusion projecting ones income can be a daunting task.
Contingent firms typically advance all the cost of litigation upfront in return for a percentage from the recovery. Inside a contingent case a company may invest hundreds of attorney hours and hundreds and hundreds of dollars in to a case. If your firm loses an instance it loses not just its time but the cash committed to hard costs also. It gets worse, a firm is not allowed to deduct the money they have tied up is case costs. Practically they have to fund the money up front but they have to fund it with after tax dollars. They repeat the cycle and plow the fees from successful cases into the next group of cases.
The missing ingredient in improving income for most contingent lawyers is something most businesses happen to be utilizing for many years. Leverage. Most lawyers have funded costs up front since they started, only because that's the actual way it has always been done.
A revolving credit line can be one of the most important tools in a plaintiff lawyers fight for justice. By using borrowed money to invest in litigation expenses a company can remove the negative tax consequences of self funding. The firm actually realizes the wages it is receiving in fees. Any interest a firm pays can be offset by having the money which was tied up in the event costs designed for firm expansion and out investments. Nevertheless the biggest advantage has stopped being using after tax dollars to fund case development expenses.
We're in a time where trial law firms have more options than in the past when it comes to financing their practice, from traditional banks and specialty finance companies to legal finance consultants. Contingent lawyers can and ought to pay attention to the main point here if they desire to continue helping their clients.
