Cash flow management is critical for a law firm that handles contingent litigation. Many trial attorneys, unfortunately, treat cash flow management as an afterthought. They only get paid when trials are successfully settled, so cash flow is erratic. In several cases taking years to resolve, forecasting one’s cash flow can be difficult. For more details click Parks Zeigler, PLLC – Attorneys At Law.
In return for a share of the recovery, contingent companies usually advance the entire expense of litigation up front. A firm can put hundreds of attorney hours and tens of thousands of dollars into a contingent case. If a company loses a lawsuit, it loses not only time but also money spent on hard costs. Much worse, a company cannot deduct the money it has invested in case expenses. They must not only pay for the money up front, but they must also pay for it with after-tax dollars. Then they repeat the process, ploughing the fees from good cases into the next set of cases.
Many contingent law firms are lacking an element that most companies have been using for decades to improve cash flow. Leverage is a term used to describe a situation in which Most attorneys have always paid for their own expenses and that is how it has always been done.
In a plaintiff lawyer’s battle for justice, a revolving line of credit may be one of the most valuable resources. A company can avoid the negative tax implications of self-funding legal costs by borrowing capital. The company is aware of the revenue it receives from fees. Any interest paid by a company may be covered by having money set aside for case expenses available for company growth or outside investments. The greatest benefit is that case construction costs are no longer paid in after-tax dollars.
Trial law firms now have more options than ever for funding their work, ranging from conventional banks and specialist investment companies to legal finance consultants. If contingent attorneys want to keep supporting their clients, they should and must pay attention to the bottom line.