Counsel: The Journal of the Bar in England and Wales - 01/02/2008

Escaping the Albatross
Mark Gidge provides some solutions for aged debt

Pay freezes, chambers expenses, set-up costs and repayments for tuition fees (now averaging £14,900) mean that barristers, particularly those only recently called to the bar, can face very real financial struggles. On top of this, the problem of aged debt means it can take many months – even years – to establish financial security.

Of course, all businesses and self-employed professionals face the problem of debtor days, but there are particular features of the legal profession that can exacerbate the problem. Most businesses, for example, have a clearly defined completion date for a project. Barristers don't have this luxury, since a case may run into many months with no fixed timescale. Not only can payment take longer to arrive, but also, when a case goes to court there's no time to take on any other work.

Of course, in criminal work, there's always the possibility that weeks of preparatory work may come to nothing if a case gets thrown out, generating only an appearance fee and throwing any budget planning into disarray.

The Legal Services Commission is looking to change the way barristers are paid, which should help to reduce aged debt, but no decisions have been made yet. In the meantime, barristers need to find ways to overcome the problem and find other sources of money to pay their day-to-day expenses and lifestyle costs.

Credit crunch
Bank loans, overdraft facilities and credit cards can help to a certain extent, and up until recently have proved the most popular ways to juggle the shortfall. But there are problems with these methods – particularly during volatile credit situations such as the one we find ourselves in currently. At the moment, for example, an average of fifty percent of credit card applications are being refused. Also, credit cards are only really good for short-term revolving finance, not longer-term issues where payment may not be received for many months.

Banks are also tightening their belts in response to the credit crunch. Trying to increase borrowing, for example, may not be as easy as in the past, particularly since banks will take into consideration the borrower's overall position in terms of outstanding loans, mortgage repayments, borrowing on cards et cetera. Therefore, relying on banks as a single source of credit and finance is no longer the solution it was, leading many within the legal profession to look elsewhere for help.

Specialists
Specialist independent finance providers can:
- provide a dedicated service to professionals
- offer instant cashflow against an outstanding debt
- schedule an agreement over anything up to a three-year period to provide financial stability into the longer-term.

An unsecured finance facility from an independent provider can deliver higher ratios against the aged debt than traditional banks,” says Syscap Director Mark Gidge. “In addition, the finance will not be linked to earnings alone, but to a barrister's overall ability to pay. As a standalone facility it is not linked to other borrowing, such as a mortgage or personal cards.

Importantly, while credit cards and overdraft facilities offer short term help, a finance provider can look at scheduling a solution over a longer period, usually between twelve months and three years, on a fixed rate fixed term basis, so that professionals can plan ahead to cover regular outgoings such as school fees.

Long-term stability
The issue of aged debt is clearly not going to disappear overnight. Barristers have coped for many years with the problem, by juggling a range of loans and short-term facilities. But increasingly, the legal profession is turning to more robust and straightforward solutions, choosing finance facilities that exactly match their particular situation and longer-term needs, and which are less influenced by fluctuations in the credit market.

Mark Gidge is a Director of Syscap