Representing a claimant takes a lot of money. Whether you are settling or filing a lawsuit, you need money to collect and present evidence, find witnesses, transportation, and communication costs.
That is not to say you should not represent anyone not willing to pay in the preliminary stages. In any case, most of the clients would prefer working on a contingency basis, where they only pay you once you win the case. It means, as a lawyer or firm, you have to bear all the costs during the legal tussle. This increases your risk in case you are uninsured. It also strains your cash flow which can derail various processes.
To avoid these concerns many law firms are now looking for disbursement funding or litigation funding to pay for the various legal costs while having money for other projects. Some of the funding companies like Providior are willing to give money which they will then recoup once the case is complete.
Even though most firms use litigation funding and disbursement funding concurrently to mean the same thing, they are different.
Here are some of the differences between the two funding options:
- Target audience and use cases
The major difference when it comes to the disbursement funding and litigations is the target market. The disbursement funding targets smaller legal disputes and applies on a volume basis. However, litigation funding comes in the form of financing for large commercial disputes in isolation. A case must involve larger amounts of money from around AUD500,000 before litigation funding can look its way.
The disbursement funding is mostly used to fund cases like; clinical negligence, mortgage mis-selling, housing disrepair, and various smaller disputes. Litigation funding however is used for major cases like a company being sued for producing defective mass products.
- Securing the funding
Securing disbursement funding is easier compared to litigation funding. The disbursement funding involves smaller cases hence the lesser risks in case of a lost legal case. It will only take a few more successful cases to recover the lost money. There is a high rate of success when you apply for disbursement funding.
For litigation funding that involves more cases, the money involved is a lot. It comes with too much risk, and the company will take a longer period to recover these charges even when they win some cases. Therefore securing litigation funding is quite hectic. Of all the law firms that apply for the litigation funding, only around 5% – 10% qualify. Also, before the allocation of the amount, the funding company does proper background checks and due diligence. You are also only likely to get the funding when you have a high chance of success in the case.
- The cost of funding
Just like any loan, the funding attract charges. The disbursement funding is one more affordable due to the lesser risks it comes with. Generally, the rate of disbursement funding is around 10 – 20% per year depending on the agreements. The amount is paid only when the case is successful and is deducted from the claimant’s damages before any other distribution.
Given the risks that come with litigation funding, it is only right it charges more. The cost of securing litigation funding is generally around 35% to 45% of the damages awarded or recovered.
Disbursement funding and litigation are the most popular ways to keep safe when representing a client in any case. The peace of mind that comes with the knowledge that you only pay when the case is successful is worth it. In the case of a loss, you can rely on an insurance cover to reimburse the money allocated or used. The losing claimant does not have to pay anything. Therefore, the funding is the only secure way to keep your money and clients flowing all through.