When does using your own capital to fund disbursements stop making sense?

The case for financing disbursements as personal injury landscape continues to shift

When does using your own capital to fund disbursements stop making sense?

This article was produced in partnership with BridgePoint Financial.

Operating in the space for 17 years and counting, BridgePoint Financial has an unparalleled understanding of the economics of law firms – including the fact that traditionally, especially in the personal injury field, they fund their own disbursements. But fronting that cost isn’t the most economical solution any longer, warns Chief Financial Officer Andrew Shortreid.

“We’re not just asking lawyers to do something different; we’re providing an opportunity to do it better. We see ourselves as in partnership with them,” Shortreid says. “Law firms can really advance their practices if they use our tools effectively and strategically, and it’s not one-size-fits-all. We often structure financial solutions on a bespoke basis to meet the unique needs of individual client firms.”

A changing landscape

Personal injury firms have traditionally managed disbursements through a combination of cash payment for day-to-day expenses and trade finance, which is typically an informal deferred payment arrangement with a service provider, most often for expert work. But that model is at odds with the current environment and is being challenged in a few ways, Shortreid notes.

First, the banks continue to take a hardline approach in underwriting personal injury primary law firms and offer limited credit availability, restricting the flexibility of partners who wish to distribute excess earnings to their professional corps and forces them to keep capital they’ve already paid taxes on within the business. A second challenge is the changing composition of law firms themselves: those that diversify and have both contingent and non-contingent fee work can experience stress around the allocation of cash within the business to the different practice areas. And finally, extended claim durations put financial stress on expert firms by stretching out the timeframe between the delivery of a service and receipt for payment.

“These arrangements often start out as win-win for both parties but shift over time and become less feasible for the experts who see flat cash collections versus a rising receivable balance that consistently marches higher,” Shortreid says. “The presence of a significant deferred payment program adds operational complexity to an expert’s business that requires both staff and resources to manage. These extra costs aren’t typically visible to a law firm but are very real to the experts.”

Leveraging BridgePoint’s financial solutions – such as Expert Access, a program that enables lawyers to source qualified experts in any discipline using BridgePoint’s proprietary online Expert Search tool, with the option to defer payment for their reports until settlement with no interest for up to two years – addresses these pain points by putting BridgePoint’s money to work, leaving funds within the firm for other things like reinvesting in the business.

“Access to capital is one of the key determinants in enabling growth, and BridgePoint removes constraints and friction that stand in the way of that growth,” says Shortreid. “Our financing allows for quicker investment across a broader range of files and to make these investments without sacrificing hiring, marketing or operating expenses.”

The financial brass tacks

One of the fundamental reasons BridgePoint exists is that a growing personal injury firm is a consumer of capital and needs to make long-tailed investments to grow the business. When a lawyer takes on a client, they’re investing years of time, money, resources and overhead – and the internal cash available is finite. Lawyers have an obligation if they’re taking these files on spec to invest in them, but the capital-intensive business of a law firm can sometimes make it difficult. BridgePoint’s funding is the perfect solution to keep files moving and business growing.

Though providing capital to accelerate growth is a popular example, its use isn’t limited to that scenario. BridgePoint’s underwriting tools and processes allow them to offer significantly more credit financing to law firms than traditional financial institutions and to grant those solutions across a range of innovative lending products that’s unmatched by any other specialist lender in the country. With financial terms that reflect the reality of how law firms operate and generate cash, BridgePoint’s solutions can assist with initial investments required for younger firms as they establish their practice, help mature law firms optimise their balance sheet, or help finance file acquisitions or practice transitions as the next generation of lawyers rise up.

“We work with law firms across the country, of all shapes and sizes, and what we offer goes beyond that one use case – we have a range of solutions, from tip to tail of their life cycle,” Shortreid says, noting Bridgepoint’s technology is also a key feature in the delivery of a frictionless experience. Over the last five years, they’ve focused on developing and improving the law firm funding portal to make firms’ investments in experts and in the hard costs of funding their files seamless. The portal gives law firms and service providers the ability to access an online marketplace where they can come together, find each other, and conduct business.

The bottom line, financially speaking, is that “internal returns generated by a growing business far exceed the interest costs on the capital we’re charging,” Shortreid says, adding “using our money enables law firms to maximize the slope and optimize the pace of their growth.”

The future of practice

There is a large and growing cohort of the personal injury bar that recognizes themselves as both professional practitioners and businesspeople, and they are driving rapid change with respect to business process optimization. From one or two partner firms all the way up to those with several hundred employees, they’re making significant investments in the tools and training necessary to run their firms efficiently – and BridgePoint’s range of products and services are an increasingly popular option that align with this shift. BridgePoint can service any size law firm and cater to each one’s specific needs, which Shortreid calls “the beauty of BridgePoint: no limits and superior knowledge.”

“We’ve grown our expertise around the unique business model of a law firm, cultivated strong relationships with a broad set of talented experts on the portal and have an amazing team of in-house client success staff that’s dedicated to meeting the needs of our law firm clients. We feel we’re the best-positioned partner to ensure law firms maximize the value overall of the services they provide for their clients.”

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