The recent Legal Futures news that a personal injury firm was forced to sell its multi-track work at a ‘considerable loss after the ‘sudden and unexpected’ withdrawal of support from its bank, highlights the pressure many firms are under and the need to consider real alternatives to more sustainable, business-focused litigation funding options.
In the Legal Futures article, we heard how the Solicitors Disciplinary Tribunal (SDT) had fined two partners and a non-lawyer partner in a personal injury firm, for retaining unpaid professional disbursements in its office account. The story highlights the dangers that solicitors face if they run short of money – something that can happen to the most well-run firms that operate on a CFA model.
As Reuben Glynn, Managing Director of Partners in Costs explained: “This decision highlights what all firms of Solicitors should already know, that you cannot hold client monies in your office account. Client money (which disbursement funding would cover) must be paid straight into the designated client account in readiness to be used to discharge the fees to which the money relates. If any element of that money relates to costs then the relatable element must then be transferred to the office account within 14 days. Holding client monies anywhere but in a designated client account would likely risk a similar intervention by the SRA and could therefore lead to action by the Solicitors’ Disciplinary Tribunal.”
We agree. The cashflow demands in PI businesses can often be exacerbated by delays by defendants leading uncertainty of timing and quantum of receipts through no fault of their own and having to finance additional court fees.
Matthew Gwynne, SpectraLegal Finance explains: “It appears this firm wasn’t taking money out of the client account to fund its business but placed all funds received (which included client money) into its office account. It did not properly transfer the client money into its client account; using it as additional funds to support the firm’s working capital needs, presumably because it was short of cash or reaching the limit of its overdraft.
“This is not the first firm to have been tempted to do this – or have actually done this.”
The article clearly shows that the SRA considers this a severe breach of SRA Accounts Rules and there are consequences. In addition, there would be personal liability on all managers of a firm if the firm were not able to make good the client money.
Gwynne continues: “The reality is that, now, with a business like SpectraLegal providing finance in the market, there is really no need for well run solicitors to get into this situation.
“Where a firm finds itself regularly reaching its overdraft limit, we can usually assist. It is usually the case that most banks are not able to provide all of a personal injury firm’s cashflow needs, whereas SpectraLegal is able to provide working capital finance to meet those additional cashflow demands through a range of innovative and specialised finance products and strategic funding focus that allows us to offer finance where others cannot.”
What are the solutions?
The increasing number of firms using Litigation Funding is a common media headline at present. Cashflow funding, such as our Costs Account, is a more strategic and sustainable alternative to bank-funded overdrafts (which could, technically be stopped or denied without warning). For many firms, the loss of an overdraft facility means they would struggle to pay for disbursements and take on new cases.
The need to stay agile, competitive and invest in marketing, people and business processes is also a key driver for personal injury and clinical negligence firms. These steps require funding – compliant and sustainable funding that allows your business to grow.
We are very proud to offer the lowest rates in the market for our advanced costs facility to help litigation firms that are looking to quickly and simply receive advances of up to 70% against their costs and disbursements.
Our newly priced Costs Account unlocks the most competitive rates in the market, allowing you to confidently and quickly reignite your firm’s investments in marketing, your business and your processes to further support growth.
We would be delighted to talk to you about this and explain how our product is compliantly vetted and delivered, giving you peace of mind as well as value for money and room for growth. Contact Matthew Gwynne, Director, Business Development & Client Relations, today.