What to Know About when Financing Legal Fees
While majority of the small and medium sized law firms like to prosper and grow, only few have the working capital needed in handling increased case loads or the extended settlement payment. As a matter of fact, factoring is the purchase and the sale of accounts receivable to which in this case is legal fees is offered at discounted price or close to the time of creation which can help to solve common cash flow challenges.
What specialty finance firms will do is buy legal fees on the settled cases. The moment when a case is settled and that all documents have been executed properly by the defendant and plaintiff, the fee receivable is bought for a discounted price which is normally ranging around 2 to 12 percent depending on the amount and payor. The major difference in the rates is basically on the estimated time it is required to recollect the fee.
Here are few of the steps on how the entire process is done.
Number 1. Master fee purchase agreement – this is executed in specifying terms of under which fees will be bought and this includes both the maximum and minimum amounts, fees, rebates and advance rates.
Number 2. Submitting fee purchase – for this, it is where the fee submission for the purchase by making use of the submission forms/process factor is done. The documentation is quite simple and closing is usually done within 24 to 48 hours. When it comes to the documentation, it only needs the copy of client fee agreement, copy of judgment or settlement, must be signed by the defendant as well as the insurance company or other payor and must have a letter of instruction from the attorney to the payor directing the payments to lockbox or bank of factor.
Number 3. Acceptance – basically, it solely depends on the factor whether to accept the purchase of fees or not. The discount will also be included in the factor’s fee and to any margin or haircut form of the face value in which the factor is needed. In most caes, the factoring of legal fees is requiring no haircut but this happens assuming that the payor has a clean and good credit standing.
The letter and the assignment of instruction from you is sent to the payor of fee which is usually the insurance company.
Number 4. Payment – the payor must send all checks to the factor where the amount will be credited to your account as received. If ever the payor paid in timely manner meaning less than 3 months, you’ll get a rebate when enough money is collected in closing a particular transaction.