Delayed settlements impact law firm operations by disrupting the firm’s cash flow. Law firms typically operate under a contingency fee basis, which is beneficial to the client but often limiting to the legal team. As lawsuits linger longer and settlements seem even more challenging to reach in a timely manner, it is critical for attorneys to consider the implications.
Financial Implications Can Strain Practices
It is very common for long delays in settlements to impact law firm operations, limiting cash flow the longer it carries on. Cash flow issues could result in delayed revenue, which impacts many areas, including:
- Lease payment obligations
- Salary payments to attorneys and staff
- Other financial liabilities you may have
Over time, this can become a strain on the practice’s ability to meet basic financial objectives, particularly when late fees accumulate. And borrowing through a traditional business loan to meet your obligations becomes challenging without a strong revenue stream to support the borrowed funds. This drives costs up and limits a practice’s ability to grow.
Financial implications like these can impact a variety of factors, including a firm’s ability to provide critical services and competitive benefits over other firms, such as access to expert witnesses or meeting financial requirements during the discovery phase. Expenses for the trial may also be limited. All of this creates frustration for law firms.
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Delays Could Encourage Victims to Settle for Too Little Too Soon
Another implication of delayed settlements is the pressure placed on victims, who typically face financial strain if they cannot work and must wait months or longer for their settlements to arrive. In these situations, it is quite common for victims to become desperate enough to settle for less than they would likely get if they went to court or pursued additional litigation and negotiations.
The impact on the firm is relevant here as well. Lower settlements mean less revenue from the case, cutting profit margins and straining relationships with clients. It can be frustrating for law firms to convince victims to put off claims when they need financial support.
Law firms can recommend solutions. Personal loans bring limited benefits, but the use of pre-settlement lending offers a real solution by giving access to funds expected to be received in a settlement now, without any monthly payments. This could encourage clients to hold off on settling too soon, with no need to prove their credit score, income, or employment status.
Operational Impacts on Firms
Delays in settlements can impact law firm operations, particularly in client services, and may extend to various operational factors within the firm. For many firms that rely heavily on staff and administrative teams, a lack of cash flow can affect relationships with these teams. Over time, this can lead to reputational harm for employers, making it challenging to hire or retain staff.
That creates yet another trickle-down effect. With fewer staff members to meet client needs and answer calls, there are fewer incoming clients. Those who are onboarded face delays in getting their claims brought to court, which creates longer delays in the revenue cycle. There is also a need to track down those late payments and keep oversight on what the firm is owed.
The longer it takes for settlements to occur, the more pronounced the financial impact on operations may be. Investment in marketing, onboarding new staff, and creating long-term practice growth objectives is impossible, according to The Impact of Falling Law Firm Realization Rates.
Once the practice falls behind in these areas, catching up and remaining competitive in the local market can be challenging to achieve. This highlights the importance of finding effective solutions to expedite client payments.
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Limitations on Financial Reserves and Solutions
Many law firms have financial reserves in place that could help mitigate these cash flow problems and, in the long term, support both the client and the firm’s objectives and long-term goals. Reducing financial reserves is not ideal, and can be very challenging for firms to recover from if settlements continue to be delayed or the firm does not win expected claims.
It becomes critical to consider ways to mitigate these risks, such as:
- Creating a stronger case reserve is an option. You can do so with the support of other investors or by defraying other costs for a time period to build up reserves, such as by putting off growth opportunities.
- Diversifying case types can also help by limiting the number of contingency fee cases the firm takes on. When settlements begin to take more time, firms may pull back on the number of personal injury or workers’ compensation cases they take and focus more on upfront and retainer-fee-based clients until those settlements begin to come in.
- Creating strategies to enhance financial management can also be beneficial. Legal tech tools can help automate certain tasks, minimizing labor costs during these challenging periods. It may also be necessary to establish clear billing practices and time limits for cases that are anticipated to have prolonged litigation periods.
Efficient case management is how firms avoid financial failure. Improving practice management, reducing expenses and operational costs, and supporting clients in maximizing their returns could help support exceptional growth for firms over time. This allows you to build larger cash reserves, reducing the financial implications of these delays with various types of funding.
Apply Now for Pre-Settlement Funding
The Obstacles Are Very Real
For a law firm, seeking full and fair compensation for clients is always the goal. However, the courts and insurance companies may put pressure on your clients to settle too soon or cause delays they know are financially challenging.
Creating a risk mitigation strategy, improving operational efficiency, and collaborating with third-party resources, such as pre-statement funding companies, can help alleviate some of the financial strain on firms and ensure they can continue to meet client needs.
Apply for a Pre-Settlement Loan Today
Talk to the team at Silver Dollar Financial about your situation today and how delayed settlements impact law firm operations. You can apply for and receive up to $100,000 in as little as 24 hours when applying for a pre-settlement loan.
Call or text (844)871-0628 or Apply Now for Pre-Settlement Funding