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 actually the sale and the purchase of accounts receivable where in this case is legal fees comes at a discounted or near the time of creation helps in solving this dilemma.
What the specialty finance firms do is purchase 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 main difference in rates is the estimation factor of time that it would take to collect the fees.
Here are the steps on how the entire thing works.
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. 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 be included as well in the factor’s fee and in any margin or haircut form of the face value to which the factor is required. Normally, factoring of the legal fees needs no haircut if ever the payor has no unquestioned credit 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. In case that the payor paid in a timely manner or in other words within 3 months, you are going to get a rebate when enough money is collected when closing a transaction.