Trial consulting is certainly not a risk-free business. Recently, our most significant competitor laid off roughly 50 full-time staff, for example. That can serve as a cautionary lesson for our industry.
As a CEO, one of my jobs is to minimize risk to ensure that we don’t run into the same kind of problems. One of the biggest risks that our firm and litigation consulting firms like ours face is how we get paid. It’s probably the single largest barrier to entry in our marketplace.
We try to be thought leaders in our field, and publishing our litigation consulting report blog is part of that effort. I believe, and I know this view is shared by most in the industry, that if we can manage how we get paid better, the entire industry will be better for it. Simply, the better payments are managed in the tripartite relationship of litigation consulting firm, law firm and client, the lower the overall cost to the client (and everyone else too). That connection between good payment structures and the ultimate cost to the client may not be obvious at first glance.
No firm active in our industry is as large as a major law firm. Not one of us can really afford to float the bills for a major law firm or major corporation for very long. As a result, the more predictable the payments and the easier payments flow from client to law firm to litigation consulting firm, the lower the costs for everyone in the relationship.
To take a closer look at why this is true, here are 10 reasons that paying litigation consulting firms on time saves the client money.
1. Alternative Fee Arrangements Are Good Business. Clients love alternative fee arrangements. They're demanding them of law firms and litigation consulting firms alike. In this article about alternative fee arrangements, I outlined 12 methods we use for charging customers. Most of our alternative fee arrangements have predictable payment structures built into them. Sticking with these payment structures allows us to offer predictable pricing and usually offer discounts in the process.
2. Structured payments make for more reasonably sized invoices and predictable outcomes. We prefer and our long-time clients have come to prefer a model where we offer predictable structured payments throughout the lifetime of a project. It ends up saving everyone money. In the right kinds of cases, we even couple structured payments with fixed prices.
3. Litigation Consultants Are Not Like Other Experts. We often hear from clients that many of their experts are comfortable waiting months to get paid and so we should be too. However, there is one big difference between a litigation consulting firm and most experts. A litigation consulting firm brings a team in to solve a problem (i.e. people to run a mock trial, create litigation graphics, run courtroom presentations). There can be dozens of people and large out-of-pocket costs involved. An expert firm may only use one or two people to prepare an expert report; thus their costs are quite low. Time is money always, but it is especially true when there are many out-of-pocket costs. The shorter the length of the outlay, the lower the price we can charge ultimately.
4. Working Capital Requirements Are Large. In a large project for a large case, it would not be unusual for us to generate six figures worth of invoices in a single month. If we do that a few months in a row and then have to wait three or four months to get paid on those, we would need to have upwards of half a million dollars of cash on hand just to fund that single project. And we're never just working on one project. Given the opportunity costs of keeping cash on hand, we can charge less when we don't have to keep it to fund a project.
5. We Provide Rare Access to High-End Talent. I think there are only a small handful of people in the world who are experienced in litigation and have a creative talent. Many of those people work at our firm, and there are others at a small handful of firms around the world. You should not forget that you're paying for rare talent whether that is your jury consultant, your graphics consultant or your in court trial technician.
6. You get what you pay for. This is true in terms of quality, but this is also true for payment. When litigation consulting firms are not getting paid, salespeople do not get their commissions, and they complain to the folks who deliver your product. When the people charged with delivering your product have questions about the firm they are working hard to support, you can imagine that everyone suffers. It is a lose-lose cycle that is so easily avoided.
7. Responsible payment processing helps everyone. Most firms like ours have had clients fail to pay their bills at some point, and this is money we probably will never see. So, it quickly raises red flags when we see payments arriving late. One way or another, this causes the cost of a project to rise, often because work is delayed and must be inefficiently rushed close to trial. If bills never get paid, like shoplifting losses in retail, it just gets passed onto other clients in the form of higher prices.
8. We offer discounts for early payments via wire transfer. We try to make it easy for our customers to pay, and we even pay them to do so. It is a win-win.
9. Friction costs money. The more a litigation consulting firm has to do to get paid, the more it costs the client ultimately. Such costs come in many forms and are easily avoided. Why not simply create set-it-and-forget-it payment structures at the beginning of an engagement coupled with accountability systems around the work performed? Doing so produces smaller invoices and better relationships.
10. The equities support on-time payment. In comparison, litigation consulting firms are dwarfed by law firms and their clients. Is it reasonable to ask a litigation consulting firm to fund the operations of a Fortune 1000 company? Of course not. The cost of capital for a litigation consulting firm is much higher than for a law firm or Fortune 1000. Accordingly, money is saved simply by not forcing a litigation consulting firm to tap its pricey lines of credit to fund litigation when that capital could more cheaply be deployed by firms with much more cash on hand.
Other articles related to alternative fee arrangements and working with litigation consulting firms: