Law firms are cash businesses. When cash flow and liquidity are critical, portfolio financing presents a ready source of capital for firms to manage expenses and mitigate the risk of affirmative litigation.
Corporate clients want increasing their law firms to work on some form of results-based engagement, in which whether, how much and when a law firm is paid tie directly to the ultimate success of the particular engagement. For some firms, this fee model aligns perfectly with their business model of working on high value affirmative commercial litigation and arbitration on a contingency model in exchange for a portion of the often significant upside of a big judgment or award. For other firms, affirmative litigation carries the concomitant unpredictability of cash flow timing, and of course, managing cash flow is fundamental to law firm operations and profitability. Legal finance portfolio facilities provide the working capital necessary for law firms to win new clients, invest in firm growth and manage partner compensation so that litigation lawyers can work on multiyear contingency matters.
Firms that serve clients on contingency encounter two challenges. First, plaintiff-side litigators don’t get paid if the client’s case doesn’t win. Second, even when the client does prevail, the unpredictable timing of cash flow to the law firm impedes that firm’s ability to take on new business and grow. Other law firms—typically bigger, more full-service firms—are frequently unwilling or unable to take on any meaningful risk and prefer to continue to be paid using the standard billable hour model. These firms risk losing work to litigation boutiques and other firms that are willing to take contingent risk. Legal finance can help both types of firms evolve to give clients the results-based engagements they are