Relationships depend largely on trust and communication, and in the context of your relationship with litigation clients, these elements are especially important. Litigation can be an emotionally charged process for the client. Litigation also involves inherent unpredictability both with respect to the outcome and the budget. As such, a number of opportunities for uncomfortable conversations with clients may present themselves.
Common & Uncomfortable Budget Situations with Legal Clients
- Due to unforeseeable events or the posture of the adversary, you must inform the client that the budget will be triple what was initially projected.
- Client seeks a risk-sharing fee structure that exceeds the firm’s comfort level for such arrangements. So, while explaining that your client’s case is very strong and should be pursued, you must decline to partner with the client to the extent the client would prefer.
- Firm is carrying a sizable receivable with a client that is in arrears, indicative of significant financial pressures on the client, which may result in a premature termination of the engagement and an unfavorable disposition of the matter. Regardless, you must firmly ask the client to “pay up”.
Most lawyers cringe at the thought of having any of these conversations with a valued client. In reality, most experienced litigators have had these conversations more times than they would like to count.
Soften the Blow on Client’s Litigation Budgets
In each of these instances, the blow could be softened if the firm were willing to offer an alternative fee arrangement such as a contingent fee or hybrid (contingent-hourly) fee arrangement. Indeed, during the last several years, law firms have increasingly implemented alternative fees based on sharing risk both to accommodate their clients and to avoid a discussion based solely on discounting.
The ability to offer these alternatives provides a distinct competitive advantage to lawyers. Rather than wrestling over uncomfortable budget conversations with clients, lawyers can offer alternatives and thereby strengthen client relationships. However, the economics of large law firms do not allow for an unlimited appetite for these arrangements.
Soften the Blow of Alternative Fee Arrangements for Your Law Firm
One solution that is being incorporated by many leading law firms to span the disconnect between client preferences and the firm’s appetite is commercial litigation financing. A number of specialized financiers now exist that provide capital to litigants in commercial litigation in exchange solely for an interest in the financial outcome of the matter. Clients can achieve budget economics similar to contingent fees, but without their law firm deviating from its financial model.
Currently, the vast majority of commercial litigators have, at best, a rudimentary understanding of this specialty capital market. Awareness of this innovative solution is growing, particularly within the business community, and utilization is increasing exponentially.
For a limited time, litigators who develop their knowledge of this emerging capital market can gain a significant advantage over their colleagues who are not as well informed. With a basic grounding in this emerging area, litigators can expand the budget management options available to their clients and to capitalize on alternative fees beyond the capabilities of their own firms.
For more information, download our Guide to Litigation Finance.