Editorial: Pagination, Profits & Problems in Personal Injury
Has economic uncertainty created cash flow problems for law firms, and what options are available for them to address this?
Economic uncertainty has not caused cash flow problems for law firms – reforms to the personal injury sector has been the main cause for law firms failing or closing in this sector.
The Ministry of Justice has announced that the small claims will be increased to £5,000 for whiplash claims and £2,000 for other personal injury claims. Thereby personal injury cases will need to be worth in excess of £5000 in order for the successful party to be able to claim back their legal fees from their opponent. Cases worth less than £5000 will not be viable for a law firm.
The Ministry of Justice will also introduce a tariff system for whiplash claims, significantly reducing compensation entitlement for injuries sustained, and a ban on offers to settle whiplash claims without providing medical evidence.
The reforms have impacted heavily on cash flow for law firms and put them at real risk of failing; some firms have already been forced to close or make redundancies as they have been impacted by the personal injury reforms. Many firms do not see a widespread cash flow problem until it is too late.
Law firms are looking to diversify when faced with such changes. This requires staff training, paying for new claims and changing the whole business model.
A major problem for law firms is paying disbursements for live cases, as this seriously impacts cash flow.
For example, insurance companies will not fund pagination. This is short-sighted and makes no economic sense: pagination saves more money than it costs; using a pagination company alerts the solicitor to potential pitfalls in the case, identifying pertinent missing records, providing a well-ordered, paginated and indexed bundle that the solicitor and the experts can easily navigate, saving time and reducing their fees.
The insurance company will argue that pagination is a disbursement and should be paid by the solicitor. Solicitors have already taken a hit on their success fees and now, if a case goes to detailed assessment, the pagination fees are the first thing to be cut, yet the solicitor is still liable for this fee and therefore must pay it out of their own pocket or ask the claimant to pay it.
As a potential solution, many solicitors look to their banks to increase their overdraft limit, however there is a real risk that the bank can call in the overdraft without notice, so many firms are now turning to external legal funders.
Ayesha Khan, VFS Legal Funding – Modern Law Editorial, June 2017