Law firms cost focus will drive financial innovation in the sector
The latest research by PwC has confirmed the top three business priorities for legal firms, to improve the use of technology, standardise and centralise process, and improve the service offering, haven’t changed over the last year.
But what the pandemic has brought into sharp focus for legal firms across the UK is a desire to reduce costs. In 2019 cost reductions were last on a long list of priorities for firms. Fast forward to 2020 and it overtook critical challenges including the use of data analytics in decision making and reducing cyber threats to become the sector’s fourth priority.
And if the legal sector response to the 2008 economic crisis is anything to go by, cash management will remain a priority for the long term. In the short-term reducing expenditure, and billing to time, will increase cashflow, in the longer term it presents firms with a challenge.
Many of the issues the legal sector has faced during the pandemic are common to most types of business. A recent survey by the Law Society found that firms are forecasting a 10-20 per cent drop in revenue for the 2020/21 financial year. And that’s just the start.
Businesses that have already weathered the Covid storm will be keen to avoid costs that are not directly linked to immediate trading. Combine that with the negative effect Covid has had on families’ finances and you’ve got the perfect storm of decreasing corporate demand, and an increase in clients who struggle to pay the personal fees arising from legal action.
Firms can offer their own solutions to help clients with funding cases. If cashflow allows, deferred payments with an uplift in charging rates is an option, as is a “conditional no win, no fee” arrangement.
These approaches can help customers, but of course pass risk and cashflow challenges directly to solicitors’ practices. At a time where cash management is increasingly important, practice finance departments are looking closely at the number of cases the practice can fund, and how long it takes for cash to come back. The potential uplift associated with these arrangements that accrue to practices is increasingly of secondary interest to firms.
Of course, the issue is exacerbated in multi-disciplinary firms that include an active litigation and/or contentious probate teams. And with probate claims the time to receive repayment is extended further as liquidation is often conditional on both success in the case, and then the subsequent proper liquidation and distribution of the estate.
If firms can’t offer funding solutions it can result in refusing good clients – who then walk down the road to a solicitor who is able to help them. This has a dual impact on a firm’s reputation and its finances.
But there is an answer that benefits practices and individuals, and that is looking externally for financial solutions that fit the firm and clients’ needs.
A good start is engaging with a provider who has deep knowledge and expertise in the area they are operating in – this is key. And that means lawyers stepping outside their comfort zone and finding innovative solutions to the cashflow problems they and their clients face today.
The financial services sector has traditionally been poor in designing products that work in the legal sector. It has often tried to shoehorn an existing approach into the sector and expected solicitors to make the product work – it doesn’t.
Successful companies take the time to understand the dynamics of the legal sector, its challenges and are prepared to create an innovative solution that addresses them.
When we designed our first lending product in the legal sector, we spent six months consulting with law firms, specialist probate services, and ‘boutique’ firms to understand them, their business and the needs of beneficiaries.
Their input was invaluable and instrumental in shaping our offerings, which are unique in the sector. They are accessible to anyone who is due an inheritance, or executors faced with an IHT bill, and without the funds to pay it.
Our most recent product was designed specifically to address the challenges the legal sector faces, and in consultation with some of the largest contentious probate teams in the UK.
Our recent consumer research told us that 50 percent of people would expect their solicitor to be aware of and advise on products that can help with contentious probate, probate delays, or with the need to obtain an inheritance early.
By offering their clients credible solutions, solicitors improve their cashflow and service levels, and that in turn improves their clients’ experience of the firm.
To find out more about Tower Street Finance visit www.towerstreetfinance.co.uk, call 0343 504 7100 or email email@example.com