How to stop legal reforms causing a crash in cash flow
As April 2020 fast approaches, the ‘whiplash reforms’ section of the Civil Liability Act will see the legal claims market change. The implementation of the legal reform will reduce the number of traffic-based claims, and see a higher number of other civil litigation claims contested, such as financial mis-selling and property-related matters, as law firms re-align their business models.
However, taking on a large number of litigation cases can be costly to a law firm, and in the short term, it can leave them out of pocket. In particular, solicitors offering a no-win, no-fee service and self-funding disbursements can impact their cash flow if flexible finance isn’t used. So, how can law firms ensure that they remain profitable?
Alternative and flexible funding channels are key. The legal sector needs to be prepared to look beyond traditional models, and to embrace the flexibility and agility of digital technology when it comes to offering their clients flexible payment options. There are two key areas to consider: disbursement funding solutions, and fixed fee funding solutions.
Disbursement funding enables law firms to run no-win, no-fee civil litigation claims, even on a high-volume basis, and therefore to complete in an ever-increasing and competitive marketplace. In short, it ensures that funds are available to instruct experts and gain counsel advice as required, without any self-funding by the firm. This flexibility is essential when dealing with complex, high-volume civil litigation claims which, as outlined above, are likely to increase in the wake of upcoming legal reform.
When choosing a disbursement funding solution, law firms should ensure that it covers an array of pre-litigation costs including surveyor or expert reports and ATE policies, as well as provision for secondary costs, used when issuing proceedings such as court fees, additional expert reports and barrister costs. Ideally, it should be supported by a variety of significant funding lines in order to ensure absolute flexibility and reliability, and the provider should be able to support both conditional fee agreements and damages-based agreements. Funding should go directly to the law firm, which can reduce client withdrawal and remove the complexities of CCA funding. Of course, flexibility over loan amounts and repayment terms should also be sought.
Ultimately, the goal is to give solicitors the peace of mind that they can go to court knowing that the backing is in place to pursue proceedings at the earliest possible opportunity – particularly important in an increasingly competitive environment.
Fixed fee funding
Of course, not all legal services can or should operate on a no-win, no-fee basis. Services such as drafting wills, organising trusts and powers of attorney and consulting on employment law are vital lines of revenue for many law firms. And yet in a turbulent wider financial climate it can be tricky for clients to find the money for these services upfront. Furthermore, chasing overdue payments is yet another cost for law firms to bear.
As such, law firms wishing to protect their cash flow should look at alternative finance options to make these services more affordable and flexible for their clients. Fixed fee funding solutions offer a ‘point of sale’ finance solution to clients, rather like the ‘buy now, pay later’ models typically on offer for large furniture and white goods purchases. Services ranging from just a few hundred pounds to five-figure sums can be covered, with repayments spread over three to 60 months.
Law firms do need to be careful in terms of how such solutions are marketed and offered, avoiding a sense of brashness and making it clear that such models do not ultimately end up costing the client any more than an upfront payment. However, pitched well and offered through an easy-to-use digital platform rather than via pages of cumbersome paper forms, such a solution can be a really valuable tool for building client relationships, and for better managing cash flow. Credit decisions through online tools can be made within seconds for the vast majority of clients, and the law firm in question then receives the full amount of the loan from the finance provider within just a few days. No more fee-chasing expenses – the client repays the finance provider directly.
Good practices for smooth cash flow
Beyond these alternative funding models, law firms should also be following simple but impactful best practices for maintaining smooth cash flow amidst a turbulent backdrop, which apply across any sector. Written procedures should be in place outlining when clients are to be charged and their payment options, as well as internal processes for stopping work on clients which are overdue, and when and how to send such payments to collections. Client expectations with regards to costs and payment terms must be carefully managed from the outset, especially when working with clients going through particularly painful or difficult processes. Surprise charges are nobody’s friend.
Cash flow forecasts and projections should be prepared for at least the following 12 months, which should enable any serious problems or stability issues to be identified well in advance. Additionally, as outlined in the above article, 13-week rolling cash flow forecasts should help law firms to manage short-term pinch points and bottlenecks more effectively.
Responding to legal reforms and retaining agility, flexibility and responsiveness in the face of challenging market conditions is par for the course for any law firm. Ultimately, alternative funding solutions can provide legal firms, big and small, with access to the capital required to take on more or a regular flow of cases without crippling their cash flow. Offering this type of innovative payment solution means that finance is simple, transparent and competitive, making alternative civil litigation cases a far more attractive proposition, and enabling law firms to truly put their clients’ needs first.
Duologi provides bespoke finance solutions for retailers across a wide range of sectors. It uses a point of sale technology-based platform that integrates with retailer’s existing systems. Duologi is supported by Oaktree Capital, a leader among global investment managers specialising in alternative investments. For additional information, please visit Duologi’s website at www.duologi.com.
Duologi is authorised and regulated by the Financial Conduct Authority.
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