Accounts Receivable Financing (Legal)

A financing structure in which a law firm sells or borrows against its outstanding accounts receivable — invoiced but uncollected hourly fees, or in some structures, unbilled work-in-process — to accelerate cash flow without waiting for client payment cycles. In hourly-fee practices, receivable financing functions much as it does in other professional services industries: a lender advances a percentage of eligible invoices, discounted for aging and client credit risk, with the firm remaining responsible for collection. In contingency-fee and mixed-model practices, receivable financing is structurally more complex because the "receivable" being financed is a contingent, unliquidated claim to a future fee rather than an invoiced, client-owed obligation, which affects both the advance rate a lender will extend and whether the arrangement is treated as a true receivables sale or as a secured loan against future fee income. Law firm receivable financing is distinct from litigation funding of the underlying case: it finances the firm's fee entitlement across its docket rather than the client's cost of prosecuting any individual matter. Eligibility criteria typically exclude receivables from clients in dispute, aged beyond a defined threshold, or tied to matters with unresolved conflicts or ethical issues affecting collectability.

Receivable financing lets a firm monetize revenue it has already earned but not yet collected, which is a materially lower-risk transaction for a capital provider than financing case costs against an uncertain future outcome — and it is priced accordingly, at a lower cost of capital than contingency-docket lending.

Firms with mixed hourly and contingency practices often segment financing by receivable type, using conventional receivable financing against the hourly book while reserving higher-cost, higher-risk capital specifically for the contingency-fee portion of the docket.