Contingency fee work especially challenging in current environment
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Law firms that do contingency fee work are untraditional businesses that have always struggled to make traditional business financing options work.
“The common refrain we hear from lawyers across the country is that banks just don’t understand their business” says Stephen Pauwels, co-founder of BridgePoint Financial. “As a former banker myself, I know why they feel that way. Financing for contingency practices requires outside-the-box thinking, and banks are notoriously unimaginative. It’s just not a good fit.”
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These firms go up against massive insurance companies who have unlimited financial resources. By comparison, he says even though contingency firms are up for the challenge, the financial burden can weigh heavily.
“We’re trying to provide them with the funding tools to help even the odds,” Pauwels says.
While bank debt and partners’ capital have historically sufficed, the market has shifted to a more challenging environment, especially for personal injury firms. They are on the hook for court fees and the experts required to build cases, while waiting longer for resolution, and often settling for less than the historical norm.
The pandemic isn’t the root cause of the problems most firms are facing, Pauwels notes, but “it’s more the straw that broke the camel's back.” It has compounded matters by extending the average time frame to settle cases, while the lockdown has decreased the number of new cases over the past year, “which will impact fee revenues for years to come.”
“There’s no other business out there that requires a professional service provider to wait years to get paid for their work, and that’s only if the underlying case is successful,” Pauwels says. “We have created a new financing alternative to help them manage the current situation.”
BridgePoint has been offering specialized financing services to law firms for over a decade and recently introduced FileFunder to address the growing demand for disbursement financing. It offers a flexible solution for law firms to finance individual disbursements at their discretion and to repay the funding upon settlement of each case, perfectly in line with their cash flow.
FileFunder is the only dedicated disbursement financing service available to law firms in Canada. It has undergone a number of refinements and enhancements in the last two years, including the development of a portal interface that allows lawyers to easily fund specific files with just a few clicks.
Financing from banks is well suited for a firm’s own general operating expenses such as rent and advertising, but less so for the longer term, file-specific disbursement investments firms are required to undertake on behalf of their clients. BridgePoint wanted to offer something straightforward and user friendly to fill the gap.
“We don’t see ourselves as competing with the banks. We address a need in the market that bank financing was never designed for,” says Pauwels. “It's easy to administer and provides for a more streamlined access to financing. Once a firm is set up on our portal, it’s turnkey with the firm controlling the entire process right down to the account statement for each client at end of their case.”
The opposing forces contingency practices face show no signs of abating and those who cling to the financial traditions of a very different time should prepare for a rough road ahead, Pauwels says, while firms that develop a solid financial strategy have the best odds of success.
“We understand that contingency practices have specialized needs and require a specialized funder to work with them, and that’s where we've positioned ourselves.”
