What will transaction payments look like in the future?

The final chapter from our Transaction Management eBook takes a look at what the future will hold for payments in the legal sector.

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Things haven’t changed in decades. The processing of payments on completion of a transaction remains an afterthought to the main elements of most transactions and therefore it becomes hugely stressful as parties engage in a mad scramble to get everything in place on time at the 11th hour.​

The guiding principle of why a law firm is engaged in any transaction in the first place is to help the parties mitigate the risk from doing business. As a result of that pivotal role, it has often fallen on law firms to also handle the payments in the transaction. ​

Why should lawyers stop holding these funds?​

1. Lawyers are not bankers: Lawyers and law firms are not experts at verifying sources of funds, securing payments and ensuring that payments go to the right recipient. The services of third parties who provide this expertise should be leveraged to maximise security and efficiencies associated with this aspect of transactions. ​
2. The risk outweighs the benefits: Where law firms were once able to benefit from the interest on funds and the status associated with their involvement in this process, this is now overshadowed by the risks of falling victim to cyber-attacks, human processing errors or misappropriation/misdirection of funds.​
3. Not being paid for the service: Law firms are unable to charge their clients an appropriate fee for the service, including the accompanying level of risk, because it is perceived as part of their responsibility for acting on a transaction. In many instances, the administrative costs of fee earners/other professionals at law firms handling these transactions are the first to be written off. This means that valuable time is spent on risky, complicated processes that generate no financial benefit for the firm.  ​
4. Regulatory changes: Changes to Solicitors Regulation Authorities Accounts Rules in 2019 have made it more complicated for firms to hold funds. With increasing regulatory focus on the handling of client money, law firms are under more pressure and have to consider their procedures and reporting standards more closely. 
5. Client relationships: Lawyers are often chased by clients on the whereabouts of funds. This can be time consuming and add unnecessary strain on the relationship between lawyer and client.​

   What could it look like if law firms no longer take on the burden of holding funds for transactions? ​

   The following are points on how the financial aspect of a transaction could change, critically improve, if law firms outsource holding funds:​

   • Less time wasted and risks involved due to documentation​
     Lawyers would no longer be responsible for collating and quadruple checking spreadsheets, reducing a key risk factor.​
   • Reduced exposure to risk​
     With less exposure to operational and regulatory risk, management could focus on other aspects of running the firm.​
   • New specialist payment companies ​
     Specialist companies would emerge, providing the levels of service, transparency and ease of use that are now found in newer consumer banking solutions. ​
   • Blockchain or crypto could become commonplace​
     There has been a lot of buzz around their applications to solve for transactional risks and inefficiencies, but, as detailed in Nick Watson’s article, while there are many on-going projects, none are yet at commercial scale – nonetheless something to consider. ​
   • No need for detailed negotiations of payment terms​
     These processes and approaches could become well defined, accepted and standardised. Lawyers would be able to focus on more formative aspects rather than the mechanics of money flow. ​
   • Seamless cross-border transactions​
     With instant international payments, even the most complex multi-jurisdictional transactions could be completed with ease. ​
   • No time limitations ​
     It would be possible to close deals on any day and at any time. ​
   • Automatic movement of funds​
     Once release notices have been e-signed and digital confirmation that Conditions Precedents have been satisfied, the release of funds would be triggered. ​
   • Full transparency​
     Fully integrated digital systems available for lawyers and clients would give full visibility around where the funds are at any given time. The provision of real time notifications would increase awareness and help build trust between parties. 

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This is a chapter from our eBook Transaction Management: Is technology taking over the deal?   You can read more insights from legal industry voices on the role technology is playing in the transaction management lifecycle in the book. Download the eBook today.