How Law Firms Can Utilize Law Firm Factoring

Law firm factoring allows law firms to receive cash flow from accounts receivable by receiving compensation up front from a factoring company that then acquires the unpaid accounts as they come in. Factoring is particularly helpful for law firms because of the nature of their business. Law firms rely solely on cases for their revenue, and cases vary greatly in amounts and frequency. Money won from cases can also take a lengthy amount of time to materialize due to the nature of the payouts.

Small law firms and contingency fee attorneys can face financial difficulties when they rely solely on receiving payment from services and cases. Additionally, defense attorneys and state attorneys are often impacted by rising financial uncertainties, which can alter the timeliness of their payouts.

If the firms lack the resources that are promised to them, it can be difficult for them to take on new clients due to the expenses that go along with trying a case. This puts large law firms at an advantage, as they acquire capital more quickly and have access to larger corporations. Law firm factoring helps even the playing field by allowing small firms to receive outstanding capital before it is acquired.

Factoring may seem like a poor investment choice due to the fees associated with such a system. However, law firms have utilized factoring for decades, and with the increased instability of the financial climate, more firms are jumping on board in order to keep themselves financially fluid.

Additionally, if a firm utilizes non-recourse factoring, the factor becomes responsible for any unpaid revenue. This ensures both that the law firm will not be tied up in attempting to secure payment from clients and cases, and that the factor will diligently pursue payment on the firm’s behalf.

The American Legal Finance Association has specific protocols in place for assuring that factoring companies uphold reputable standards, thus limiting the occurrences of inappropriate payouts or deceitful agreements between the factor and firm. Additionally, factoring companies offer a variety of funding options dependent upon the individual firm’s needs, including pre-settlement funding, post-settlement funding, and appeals funding. This allows each firm to tailor the factoring relationship to its best advantage.

Law firm factoring allows attorneys and their staff to benefit from consistent compensation, which in turns enables the firm to focus its energies on its cases and clients. It also reduces the need for credit card dependence and costly loans, both of which can hinder the firm’s growth and potential.

As the financial climate is ever-changing and the legal system adapts to altered realities the business world, law firms can utilize factoring in order to make their compensation more streamlined, reliable, and secure.

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