Thanks to a consultation curve ball over the way the Personal Injury Discount Rate is set, claimant practitioners (who, only weeks ago were celebrating the new rate of -0.75%) are increasingly finding themselves in a settlement limbo that has consequences for both the client and the firm: a lack of cash flow.
Depending on the outcome of the Ministry of Justice consultation, the current Discount Rate is on thin ice. The way it is calculated could change and who controls that decision could change. However, it is not for us to speculate.
What we are concerned about is the number of our clients and contacts who have reported stagnating settlement discussions regarding their clients’ claims. It seems some big league defendants are pulling out of settlement meetings and sitting out the wait to see if a new Discount Rate could improve their situation.
What impact is this having on our clients? A change in the Discount Rate has been perversely counter-productive for some firms. It has resulted in the consultation, for some a long gap in getting their cases settled and, most worryingly for all parts of the business, the need to reforecast the personal injury and clinical negligence work as practitioners can’t settle their cases as quickly as expected.
Nobody could have predicted that the new -0.75% Discount Rate would result in an almost overnight lack of cash flow for firms. For many this is having an immediate effect on WIP valuation, raising concerns over disbursement funding (particularly court fees) and also leads financial controllers to reforecast the business – leaving to one side the additional problems associated with proportionality – which will likely influence the amount of finance that firms can levy from the bank.
Funding disbursements and the team itself are a constant concern for law firms. Build into this the idea that a team has to be profitable (you’re a business after all) and all this uncertainty in an already unpredictable sector has led to some serious concerns by the banks that are reportedly stemming the flow of funding.
Is there a solution?
Yes, firstly, get your voice heard through the consultation response. If you’re unsure what to say, speak to people who understand how the Discount Rate works and affects your clients.
Secondly, talk to us. We have a number of WIP and Disbursement funding products that are calculated entirely differently to how banks use your business forecasting. We specialise in funding litigation departments and use more refined and relevant tools to assess risk. We also understand your business and the changes affecting the sector so we can make a more informed and tailored funding agreement with you.
Contact us today if you would like to know more. Call Matthew Gwynne on 020 7043 0746 should you wish to discuss in more detail any of the topics covered in the article or would like to discuss our various finance options.
Are your defendants settling or shying away until they have further information on any changes to the Discount Rate?
Please do let us know so that we can ensure we’re delivering the right products for the current market and support your business. Please drop Matthew Gwynne line via: firstname.lastname@example.org