Some law firms are selling the right to their uncollected billings in exchange for up-front cash
Litigation finance companies and banks are paying some law firms up front for the right to their uncollected billings.
Burford Capital and Gerchen Keller are among the litigation finance firms that are buying the uncollected billings, the Am Law Daily (sub. req.) reports. Citi Private Bank has also helped some law firms sell receivables, and there is growing interest among law firm leaders, according to Naz Vahid, who heads Citi Private Bank’s law firm group.
In the past, law firms selling accounts receivable were typically smaller or reliant on contingency fees. But more law firms are expressing interest as they near the end of a fiscal year. According to the Am Law Daily, the firms are “driven by a need to pay partners, boost reported revenue or offset short-term financial uncertainty.”
The firms sell the accounts receivable for less than the amount they expect to collect, taking a loss in exchange for the guaranteed payment. The deal is profitable for the company buying the receivables unless later collections don’t meet expectations.
A former partner at Cadwalader, Wickersham & Taft who didn’t want to be identified told the American Lawyer that the firm sold part of its receivables at the end of 2015. The law firm did not comment when contacted by the publication.
The infusion of money at the end of the fiscal year could affect law firm revenue and profits per partner to the American Lawyer, the Am Law Daily story notes.