A new costs advance scheme has already paid out over £1m to personal injury solicitors in its first three months of operating, it has emerged.
Put together by Just Costs Solicitors and leading law firm funder Novitas Loans, the scheme aims to fill the gap left four years ago by the exit of Hampshire Trust from the market. So far 20 firms have signed up to it.
It enables law firms to draw down on up to 70% of their likely recoverable costs once they have successfully settled personal injury, clinical negligence and industrial disease cases.
Mark Hartigan, Just Costs’ client services director, said the scheme brought “certainty to law firms’ cash flow” given the uncertainty of when costs will be paid – some large defendants have stopped making interim payments, he noted.
“One of the reasons some law firms are finding themselves on the financial precipice is that they are fundamentally profitable but are not turning unbilled WIP and debtors into cash quickly enough,” Mr Hartigan said. “The amount advanced to date shows how needed this scheme was.”
Operated online, the system works by Just Costs drawing the bill and then advising the funder on what is considers to be a reasonably recoverable amount. The funder will then make up to 70% of this available to draw down, usually within 48 hours of the request. There is no personal guarantee required. Firms are charged a fixed administration fee per case, with interest taken monthly.
Mr Hartigan said the scheme was equivalent to invoice discounting, which lawyers cannot use because of confidentiality issues, and the competitive level of interest was similar too.
Jason Reeve, managing director of Novitas – which came to prominence by providing loans for divorce proceedings – added: “We’re delighted by the rapid take-up of the scheme and we’re looking to complement it in the new year with a new product providing disbursement funding for clinical negligence cases.”