How do law firms pay case costs on a contingency case before it settles?

The problem a contingency practice actually has

A contingency firm does the work first, pays for it second, and gets paid last. Expert retainers, depositions, medical records, filing fees, mediators, focus groups — all paid out of the operating account months or years before the fee arrives. The fee is real and the case may be strong, but a lender cannot underwrite a fee that does not exist yet, and the firm cannot bill a client for it. Meanwhile payroll and malpractice premiums run on the calendar.

That rules out one product immediately and leaves two that fit. Understanding why is most of the answer.

Why receivables funding does not apply

Receivables funding advances up to 90% of an invoice a business client already owes. A contingency fee is not an invoice: there is no payer with a due date until the matter resolves, and the published criteria list contingency fees before resolution, unbilled work and retainers held in trust as not eligible. If the firm also has an hourly or flat-fee side billing corporate or insurance-defense clients on net-30 to net-60, those invoices can be funded, and some mixed practices run a receivables facility on that side of the book while funding case costs separately. The contingency side itself cannot be factored.

Working capital, on a weekly ACH

Working capital is the product most contingency firms use for case costs. It is underwritten on the operating account rather than on the docket: 6 months in business, $15,000 a month in deposits, no minimum credit score, offer in about four business hours, funded in 24. Amounts run $10,000 to $2,000,000 over 3 to 18 months, and the approval is typically 75% to 150% of one month’s deposits.

Three details matter for a contingency file:

• Settlements count as deposits. Lump-sum settlements that land in the operating account are counted toward approval, which is why a contingency firm’s file is often stronger than its owner expects. Send four months of statements rather than three so the window includes a month a settlement landed and a month none did; the payment is sized against the quiet one, which protects the firm.
• Choose weekly. A firm whose deposits arrive as a few large settlements a month is better served by one debit on a Wednesday against a week of receipts than by a daily pull on days nothing came in. You pick the rhythm at signing.
• The early-payoff discount is built for you. The payback is fixed, so when a case settles in month four of a twelve-month term, clearing the balance early keeps up to 30% of the remaining cost of funding (the largest discount inside 30 days, then 60, then 90). Take the term you can carry out of the hourly side of the book, and pay it down when the fee lands.

Send the operating account, not the trust account. IOLTA balances belong to clients, are not revenue and are not underwritten.

A line of credit, opened after a settlement

For an established firm with 600+ credit, 12 months in business and $25,000 a month in deposits, a line of credit of $25,000 to $500,000 is the structure to grow into. The timing is the whole trick: open it the month after a settlement lands, when the statements look their best and underwriting is easiest. It then sits unused at no cost — no maintenance fee, nothing charged on an undrawn balance — until the next matter needs an expert retainer. Draws land the same business day once the line is open, are repaid over 6 to 24 months or out of the next settlement, and the line is reviewed every 6 months and grows with deposit history.

The firm that applies for a line in the dry month before trial, with three soft statements and a deposition bill due, has picked the hardest week of the year to be underwritten. Open it after the win.

How to pick

• Costs are due now and the firm is under 12 months old, or credit is below 600: working capital over 6 to 12 months, weekly ACH, four statements sent.
• Costs recur matter after matter and the firm clears the line’s criteria: open a line the month after the next settlement, then draw per case.
• The firm already carries two or three advances against case costs: stop stacking and ask about a term loan consolidation into one monthly payment over 36 months.
• Mixed practice with corporate clients on terms: fund that side’s invoices with receivables funding and keep working capital or the line for the contingency docket.

Contingency-fee and personal injury firms are approved by name — see contingency firms — and the law firm credit and personal guarantee guide covers what each product requires of the owner.

What you’ll need

• The 4-minute application. Applying does not affect your credit.
• 4 months of business bank statements for the operating account, so a settlement month and a quiet month are both in the window.
• Not the trust or IOLTA account.
• A sentence on the mix: roughly how much of the book is contingency versus hourly or flat-fee, and whether any corporate clients are billed on terms.
• Any existing advance disclosed up front.
• Your preferred rhythm: weekly, in most contingency files.