A commercial dispute that takes four years to resolve is, before it is anything else, a four-year funding requirement. The legal work happens in year one, the expenses go out in the first eighteen months, and the fee or the recovery may not arrive until much later. Understanding how firms bridge that gap explains a lot about modern legal practice.
Why a long case becomes a financing problem first
Litigation has an unusual cash profile. Costs are front-loaded while revenue is deferred. The outlays that fall due early are usually described as disbursements: court and tribunal filing fees, expert and medical reports, discovery and document review, counsel’s fees, searches, translators, travel and trial technology. On an hourly arrangement, the firm bills as work proceeds, but collection can lag behind the work. On a contingency arrangement, the firm’s own fee may not crystallise unless and until the matter resolves.
How long that can take is documented. A Bureau of Justice Statistics study of civil trials in large state courts, based on 1996 data, found an average time from filing to verdict or judgment of about 25.6 months, with asbestos cases averaging just over 50 months. A later BJS analysis of federal tort trials terminated in 2002–03 reported a median processing time of roughly 20 months, with about 5% taking five years or more. These datasets are historical, and timelines vary widely by court, case type and jurisdiction, but they illustrate the structural point: a firm may be carrying a matter for several years before it is paid.
Two accounting terms matter here. Work in progress, or WIP, is the value of legal services already performed but not yet billed or collected. Disbursements are amounts the firm has paid on the client’s behalf and expects to recover. Together they can represent a large receivable tied up for years, which is why financing decisions in law firms are often about timing rather than creditworthiness.
The money can come from several different places
Case-level funding is distinct from firm-level borrowing. Practice finance, such as an overdraft or a term loan, funds the business as a whole. Case-level arrangements fund a specific matter or a portfolio of matters. The table below summarises the main routes, drawing on categories described by specialist advisers and market guides.
| Funding route | What it finances | Typical repayment source |
|---|---|---|
| Firm’s own capital / partner contributions | Case outlays and working capital | Case recoveries and firm profit |
| Practice-level bank facility (overdraft, term loan, WIP or invoice discounting) | The firm’s operations and receivables generally | Ongoing firm income |
| Disbursement or case-cost funding | Specific outlays as they fall due | Settlement or judgment proceeds |
| Third-party litigation funding (single matter) | Legal fees and/or costs of one dispute | Agreed share of any recovery |
| Portfolio or firm-level funding | A book of matters or the practice itself | Blended recoveries across the portfolio |
| After-the-event (ATE) insurance | Downside risk if the case is lost | Premium, often deferred and contingent |
Source note: categories adapted from specialist legal-finance guidance and the Chambers Litigation Funding 2026 market guide. Repayment terms vary by product, jurisdiction and agreement. Figures are illustrative of structure, not of pricing.
Case-level facilities: borrowing against the matter
Disbursement funding is the most direct case-level product. A lender advances the cost of outlays as they fall due, and the advance is generally repaid on settlement or recovery, usually with interest or a fee. One important structural question is who borrows. The loan may be taken by the firm, or it may be taken in the client’s name, in which case the firm typically administers the funded money on the client’s behalf.
Larger matters may use work-in-progress and disbursement facilities, which lend against the value of unbilled time and outlays, or costs-advance facilities, which lend against a costs order already made in the client’s favour. These are limited-recourse structures secured against the relevant receivables rather than against the firm’s general assets.
Regulatory treatment follows the money. In England and Wales, for example, money that is genuinely the client’s must be held in a client account under the SRA Accounts Rules, while the firm’s own borrowing belongs in office account. Funding generally does not change the VAT character of a genuine disbursement, but the provision of credit is itself an exempt financial supply, so the treatment of a funding fee differs from the treatment of a court fee. These rules are jurisdiction-specific and change over time, so a firm operating in more than one country generally tracks local guidance rather than assuming a single approach.
Shifting risk: contingency fees, conditional fees and damages-based agreements
Fee arrangements are the other half of the funding picture, because they determine when a firm gets paid and who bears the risk of losing.
Under the ABA Model Rules, a contingent fee must be agreed in a writing signed by the client and must state how the fee is determined, including the percentage that applies at settlement, trial or appeal, which litigation and other expenses are deducted from the recovery, whether those expenses come out before or after the fee is calculated, and any expenses the client owes regardless of outcome. Contingent fees are generally prohibited in domestic-relations matters and in criminal defence. The full rule and its commentary are published by the American Bar Association.
Outside the United States, similar risk-sharing tools take different forms: conditional fee arrangements, where part or all of the fee depends on success, and damages-based agreements, where the firm’s recovery is set as a proportion of the amount recovered. Their availability and their caps vary by jurisdiction.
One recurring point of confusion is who pays the costs. Unless an agreement says otherwise, the client may remain responsible for expenses even where the fee itself is contingent, which is why written disclosure of that allocation matters. This is a matter of the specific engagement letter and applicable law, not a universal default.
Third-party litigation funding in numbers
Third-party litigation funding brings outside capital to a case in return for a share of any recovery. In the usual commercial structure the funding is non-recourse: if the claim fails, the funder bears the loss and the funded party generally owes nothing further on the funded amount. That risk-sharing is what makes the model work on long, expensive matters.
Independent market data gives a sense of scale. The Westfleet Advisors 2025 Litigation Finance Report, published in March 2026, identified 39 active funders in the US commercial market, about $2.8 billion in new deal commitments and 346 new deals, with capital commitments up roughly 23% on 2024. The average transaction was about $8.1 million; single-matter deals averaged about $4.5 million while portfolio transactions averaged about $19.6 million. Different research houses measure the wider market differently – one widely cited estimate put the global litigation funding market at about $29.2 billion for 2026 – so figures should be read as estimates of a fast-moving sector rather than settled totals.
Funding has moved from a niche product toward routine dispute planning. As the Chambers Litigation Funding 2026 guide describes it, funding is increasingly considered early on long or complex disputes, and funders have expanded from single cases toward portfolio and firm-level capital. That shift matters for long-running matters because a diversified portfolio can spread the cost of the cases that resolve slowly.
International operations add a further layer: firms running matters across several countries have to manage different cost rules, currency exposure and local financing norms at once. How large firms handle those cross-border financial pressures is a recurring subject in international industry coverage, and it sits alongside – but separate from – the case-level funding question.
Disclosure rules are changing
Because a funder’s return depends on the outcome, courts and legislatures have taken an interest in who is paying and on what terms. The rules differ by jurisdiction and continue to develop.
Kansas legislation requires parties to provide third-party funding agreements to the court for in camera review and to give other parties a sworn disclosure within 30 days of a case starting or an agreement being signed. Colorado enacted transparency and foreign-funder requirements, with agreements that fail to comply treated as void. Arizona adopted a disclosure rule effective 1 January 2026. Oklahoma passed a foreign litigation funding prevention measure with effect from November 2025, and Michigan has advanced registration and disclosure legislation. These are examples rather than a complete map, and the position in any given case depends on the forum and the current text of the rules.
What clients are entitled to know
Whatever funding route is used, the client’s own position usually depends on clear fee disclosure. The ABA Model Rules require the basis or rate of the fee and expenses to be communicated to the client, preferably in writing, and require a written statement at the conclusion of a contingent-fee matter showing the outcome and, where there is a recovery, how the money was calculated and remitted. Advance fees paid by individual clients are generally treated as client funds that must be safeguarded, and an advance cannot be made non-refundable simply by labelling it “earned upon receipt.”
The debate: wider access versus closer oversight
Funding is not universally welcomed, and the disagreement is best understood on its own terms.
Supporters argue that outside capital broadens access to justice. A claimant with a strong case but limited resources may be able to pursue it only because a funder or insurer is willing to carry the cost and the downside. Scholars examining the field have described third-party capital as enabling smaller or capital-constrained parties to litigate meritorious claims and as a practical risk-management tool, while raising questions about transparency, control and client autonomy that deserve attention.
Critics, including business associations, have argued that funding can lengthen disputes and can complicate transparency where the identity of the funder is not known, which is why several of the disclosure rules above were adopted. Both positions are represented in the policy debate, and the empirical picture remains contested. What is clear is that jurisdictions are experimenting with different balances rather than converging on a single model.
Frequently asked questions
Can a law firm pay a client’s case expenses?
Rules vary by jurisdiction. In many US states, a lawyer may advance the expenses of litigation provided the client remains ultimately liable, subject to disclosure and the client’s agreement. The precise limits are set by the ethics rules of the relevant jurisdiction.
What is disbursement funding?
It is a case-level advance that covers outlays such as court fees, expert reports and counsel, repaid on settlement or recovery, usually with interest or a fee. It can be taken by the firm or by the client, and the borrower’s identity affects the accounting treatment.
Who repays third-party litigation funding if the case loses?
In the typical non-recourse structure, the funder bears the loss and the funded party generally owes nothing further on the funded amount. Some arrangements are structured differently, so the agreement itself governs.
Does funding change the VAT or tax treatment of case costs?
Not by itself. Whether an outlay qualifies as a disbursement depends on the underlying tests in the relevant jurisdiction, and the provision of credit is usually a separate, exempt financial supply. The tax position depends on who the borrower is and on local rules.
What is after-the-event insurance?
It is cover against the downside if a case is lost, typically protecting against adverse costs and, in some policies, the client’s own disbursements. The premium is often deferred and payable only on success, which is what can make a conditional-fee case viable.
How long can a firm carry a case before getting paid?
It varies. Historical court data suggests many trial cases resolve within two years, while complex matters such as asbestos and medical-malpractice claims can take considerably longer. The funding structure is usually chosen with that uncertainty in mind.
What the financing structure actually determines
None of these tools changes the merits of a case. What they change is who carries the cost while the case runs, and when that cost is settled. A firm weighing its options is really choosing among three trade-offs: how much of its own capital to put at risk, how much of the outcome to share with an outside funder, and how much of the downside to insure.
For clients, the practical lesson is that the fee agreement is the document that decides most of this. It should say, in plain language, how the fee is calculated, which expenses come out of the recovery, whether they are deducted before or after the fee, and what the client owes if the case does not succeed. For firms, the lesson is that long cases reward structures that match the timing of cash outflows to the timing of recoveries – which is why disbursement funding, portfolio capital and insurance have moved from the margins of practice finance toward its centre.
