Navigating the cashflow challenges of running a Clinical Negligence and Personal Injury Firm

13 May 2024

Every business is dealing with a challenging economy at the moment – rising costs and inflationary pressures are taking their toll, and the expense of recruiting and retaining skilled knowledge professionals (like fee-earning legal staff) increase all the time.

And it seems law firms are facing a perfect storm – not only are they dealing with these issues common to many industries, but they are also experiencing sector-specific headwinds, too. Tax rules are changing for partnerships, back office costs like professional indemnity insurance premiums are rising, bills are taking longer to get paid, government reforms have limited cost recoveries for contentious work, and lockup remains a perennial challenge. But entrepreneurial firms can also see growth opportunities – M&A potential arises from market consolidation, and investment in technology and AI can lead to margin-boosting efficiency savings. So how can firms pursue these growth opportunities, whilst also dealing with the other economic headwinds they face?


The benefits of specialist external capital

Undertaking cases at scale on conditional fee arrangements can put real strain on cashflow. With shrinking margins for some areas of work, any delay in realising recoveries can quickly cause serious problems. Many firms take advantage of external financing arrangements, but some lenders to the sector have withdrawn from the market, and banks can be reluctant to provide facilities secured against contingent revenue, or are limiting the purposes to which their capital can be put.


The facilities Harbour has supplied to law firms has enabled them to refinance existing debt, monetise WIP, purchase firms or books of cases, and financed their succession plans. Firms need flexibility, and every facility is tailored to the plans our borrowers have for their businesses.


How do Harbour credit facilities work?

Harbour can offer balance sheet lending, but we are more typically asked to lend against cases which are yet to conclude – some cash may be repaid from the balance sheet, or more commonly repayments are made from cases once they conclude.


In determining whether or not we can make a facility available to a firm we will want to understand two things: Is the firm well run? And will the collateral securing the facility remain valuable?


In answering these questions we will explore a range of issues: how much is needed and for how long? Who is the firm’s management team and how do their make their decisions? Is this a stable firm with a good trading history? Do the cases which will be posted as collateral for the lending have good prospects of success, and will recoveries be realised from creditworthy defendants in a reasonable timeframe?


This article was first published in the Association of Personal Injury Lawyers magazine. Maurice MacSweeney is a Director of Legal Finance with Harbour. To discuss how third party capital might help support and grow your business, e-mail maurice.macsweeney@harbourlf.com

 
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