Managing Revenue During Economic Downturn
More than ¾ of firm lawyers surveyed expressed concern about 4th quarter collections. More than half of firms have also stated a willingness to provide discounts in order to receive payments faster or to gain new clients. Meanwhile, realization rates are falling. Bloomberg Law details that there are steps firms can take to better manage cash flow. For most firms, hitting revenue targets is not optional. Legal funding provides non-traditional options by which funds can be raised to hit targets by year’s end. By selling client receivables in sets, that money can then be recorded as revenue. The financier who buys the claims then takes on the risk inherent in accounts receivable. The benefits of this type of arrangement are numerous. Using funders to provide immediate liquid allows firms to focus on growing their client base and on legal practice rather than on balance sheets. Finance providers also don’t interact with clients and therefore don’t conduct themselves as a debt collector would. It’s similar to traditional portfolio funding in that the risk is mitigated by the larger pool of accounts. This type of monetization is a legal sale, which means it can be reported as revenue. It can be put into the general fund or used to make partner payouts. The pricing will also improve all-around, as this kind of specialty finance provider generally offers more aggressive deals. Competition from new firms is cited as an ongoing challenge by more than 2/3 of lawyers. Simplifying the number of collections and incurring revenue by year’s end can create a certainty that’s sorely compromised due to the pandemic. The use of legal finance lends stability to firms while allowing for greater flexibility—which is especially useful in the current climate.