What to Know About when Financing Legal Fees
It is true that most of the small as well as medium sized law firms are aiming to grow but only few of them have the capital needed to handle the increased case of loads or extended settlement payments. Factoring which is basically the sale and purchase of accounts receivable where in this case is legal fees is at a discounted or near the time of creation can help in solving this common cash flow problem.
What happens here most of the time especially with specialty finance firms is buy the legal fees on settled cases. By the time when the case is finally settled and at the same time, when the documents have been cleared by the plaintiff and defendant, the receivable fee will be available for a discounted price which is roughly 2 to 12 percent and that also depends on the payor and the amount. The major difference in the rates is basically on the estimated time it is required to recollect the fee.
In the next paragraphs, you are going to discover the 4 ways how it 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. As a matter of fact, the documentation is simple and closing is often done within 1 to 2 days. As for the documentation, it requires the copy of the client fee agreement, the copy of the judgment or settlement, should be signed by the defendant, insurance company or the other payor and also, should have a letter of instruction from the attorney to payor which directs payments to the lockbox or bank of the 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. Most of the time, factoring of the legal fees cuts haircut if ever the payor has a credible and trustworthy record.
The letter and even the assignment of instruction from you will be sent to the payor of fee which is the insurance company.
Number 4. Payment – the payor has to send the checks to the factor where the amount is 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.