Lawsuits are expensive and can take a long time to get resolved. Attorneys working on a contingency fee basis get paid only after resolution of the lawsuit. Unfortunately, even after a lawsuit settles, it can take several months, and in some cases more than a year, before the attorney actually receives his hard earned legal fee. Why is this so? A few reasons include administrative delays, court approvals, and slow paying defendants.
People sometimes forget that life goes on before, during, and after a case reaches a settlement. And it is certainly not cheap to run a law firm. There are numerous expenses, such as employee salaries, rent, advertising, and expert witness fees, just to name a few. These expenses pile up while the attorney waits to get paid. Not only that, but ideally, an ambitious plaintiff attorney would like to continue to grow his practice, not just tread water fighting to stay afloat.
Fortunately, there are a few solutions to combat irregular cash flow. An attorney can obtain a line of credit through the bank. Unfortunately, banks and other traditional lending institutions generally do not consider a lawyer’s caseload as collateral, so a traditional line will often not be enough to sustain the law firm.
There are specialty finance companies, often owned and operated by attorneys, who understand the difficulties that contingency fee lawyers face. Unlike banks, they provide lines of credit based on past income generated and current case inventory value. This is generally an option for well established firms with a strong track record and a large, diverse inventory of cases in the pipeline.
Rates for this specialty line of credit are significantly higher than what a bank would charge. However, because they consider the lawyer’s case inventory as collateral, they can usually advance a much larger sum of money.
But what about the plaintiff attorney that is just getting started, or the personal injury lawyer who is rebounding after a couple of difficult years? In these cases, a line of credit would most likely not be an option. If an attorney has settled cases but is still waiting to receive the fees, post settlement attorney funding, also known as legal fee financing, can be the solution to the lawyer’s cash flow problems.
Post settlement funding is not a loan. A factoring company that specializes in legal financing purchases the settled legal receivable at a discount, providing the attorney with immediate capital. When the fee finally pays out, the factoring company receives the settlement award. The attorney can use this money for any purpose, such as paying employee salaries, launching a new advertising campaign, hiring new talent, or paying day-to-day operating expenses.