With law firms anticipating a drop in income of up to 20%, Jim Sisson, finance director at Law Society sponsored partner Tower Street Finance, explains how working with an innovative probate lender that truly understands the sector benefits both your private client practice and your client.
The latest research by PwC has confirmed the top three business priorities for legal firms to improve the use of technology, standardise and centralise processes, and improve their service offering, haven’t changed over the last year.
But what the COVID-19 pandemic has brought into sharp focus for law firms is a desire to reduce costs. In 2019, cost reduction was last on a long list of priorities for firms. Fast forward to 2020, and it overtook critical challenges – such as the use of data analytics in decision making, and reducing cyber threats – to become the legal sector’s fourth priority.
And if the legal sector’s response to the 2008 economic crisis is anything to go by, cash management will remain a priority for the long term. In the short term, reducing expenditure, and billing to time, will increase cash flow; in the longer term, it presents firms with a challenge.
Many of the issues the sector has faced during the pandemic are common to most types of business. A recent report by the Law Society’s Law Management Section foud that firms are forecasting a 10-20% drop in revenue for the 2020/21 financial year. And that’s just the start.
If your firm can’t offer funding solutions, it can result in refusing good clients – who then walk down the road to a solicitor who is able to help them
Businesses that have already weathered the COVID-19 storm will be keen to avoid costs that are not directly linked to immediate trading. Combine that with the negative effect COVID-19 has had on families’ finances, and you’ve got the perfect storm of decreasing corporate demand and an increase in clients struggling to pay their legal fees.
Firms’ own funding options under strain
Firms can offer their own solutions to help clients with funding cases. If cash flow allows, deferred payments with an uplift in charging rates is an option, as is a conditional “no win, no fee” arrangement.
These approaches can help customers, but, of course, pass risk and cash flow challenges directly to law firms. At a time where cash management is increasingly important, finance departments are looking closely at the number of cases the firm can fund, and how long it takes for cash to be paid.
Of course, the issue is exacerbated in multi-disciplinary firms that include an active litigation and/or contentious probate team. And with contentious probate claims, the time to receive repayment is extended further, as liquidation is often conditional on both success in the case, and the subsequent proper liquidation and distribution of the estate.
No funding, no business
If your firm can’t offer funding solutions, it can result in refusing good clients – who then walk down the road to a solicitor who is able to help them. This has a dual impact your firm’s reputation and its finances.
But there is an answer that benefits both law firms and individuals, and that is looking externally for financial solutions that fit the needs of your firm and your clients.
A good start is engaging with a provider who has deep knowledge and expertise in the area they are operating in – this is key. And that means lawyers stepping outside of their comfort zone and finding innovative solutions to the cash flow problems they and their clients face.
Firms face a perfect storm of decreasing corporate demand and an increase in clients struggling to pay their legal fees
The financial services sector has traditionally been poor in designing products that work in the legal sector. It has often tried to shoehorn an existing approach into the sector and expected solicitors to make the product work – it doesn’t.
A financial company that understands the legal sector
In our experience, law firms prefer to work with companies that understand the legal sector, and create innovative, workable solutions.
We spent six months consulting with law firms, specialist probate services, and boutique firms to understand them, their business and the needs of beneficiaries.
Their input was instrumental in shaping our offerings, which are unique in the sector. They are accessible to anyone who is due an inheritance, or executors faced with an inheritance tax (IHT) bill, but don’t have the funds to pay it.
Our most recent product was designed in consultation with some of the largest contentious probate teams in the UK, specifically to address the challenges the legal sector faces.
Our consumer research told us that 50% of people would expect their solicitor to be aware of and advise on products that can help with contentious probate costs, paying the IHT due on an estate, probate delays, or with the need to obtain an inheritance early.
By offering your clients credible solutions, you can improve your cash flow and service levels, which in turn improves the client experience.
Tower Street Finance is a sponsored partner of the Law Society. To find out more about Tower Street Finance, visit www.towerstreetfinance.co.uk, call 0343 504 7100 or email email@example.com.