Working Capital Partners – brokers and introducers beware

Working Capital Partners is a spot factoring (single invoice factoring) company set up a few years ago which is wholly owned by Mr Perry Burns whom according to his LinkedIn profile had no factoring experience prior to setting up the company.

Factoring Solutions is one of the oldest established specialist factoring brokers around and we have introduced various companies to Working Capital Partners over recent years and received introductory commissions in return. One of the companies that were introduced by us has grown significantly and is one of their largest income earners if not the highest income earner for them. To put this in perspective their income from this client during the year to 30th June 2016 would have been in excess of £76,000 and running at the rate of £110,000 pa six months later judging by the commission paid to FS

According to the latest published accounts the total outstanding debts of Working Capital Partners as at 31st December 2016 were just over £2.5m whereas the current assets of their client just one month later were a smidgeon over £800,000 and with a facility limit of £500,000 this particular client could have represented 20% of the factoring company’s total outstanding debts.

Unfortunately the client was approached by another factoring company earlier this year who made them an offer that they thought that they couldn’t refuse so they terminated their facility with Working Capital Partners to move to the new factor.

Once the company had terminated and left, the new factoring company decided that they didn’t want to fund the company after all leaving them in no mans land so they returned cap in hand to Working Capital Partners who took them back again.

Thumbs Down from Factoring BlogIt would seem that Working Capital Partners in their infinite wisdom have decided that as the company approached them directly to return that no further commission would be payable to Factoring Solutions as it wasn’t an introduction from ourselves.

From our point of view this disgraceful behaviour goes against the conventions within the factoring industry as all reputable factoring companies take the view that they wouldn’t have had the client in the first place if it hadn’t been for the introducer.

In this instance we received a telephone call from Andy Phillips the Director of Sales of Working Capital Partners to tell us of the good news that the client wanted to return and that Perry Burns was discussing a new facility for them. My response was to ask Andy Phillips to let me know if for any reason they didn’t offer a new facility and I would try and find them a new home but if they were happy to go ahead I would leave it in their capable hands.

This would have been in about the third week in August as although I didn’t make a note of the exact date I do recall that I was on holiday and walking along the promenade in Calheta, Madeira when I took the call.

I didn’t hear any more but happened to notice that Working Capital Partners had registered a new charge on 31st August so I sent Andy Phillips an email saying that I was surprised that I hadn’t been informed that the client had signed up again to receive a rather sarcastic reply in which he referred to the company as “your client” (his italics not mine)

It has now been confirmed by a director of Working Capital Partners that they don’t intend to pay me commission on the re-signing despite the fact that the gap between the old facility and new was just a matter of a few weeks.

Needless to say I am not happy about this and when discussing the matter with a couple of directors of factoring companies they both told me that Working Capital Partners behaviour was despicable but it was partly my fault as I’m old fashioned and believe that my word is my bond and I do business on a handshake expecting others to do the same. In my defence in 18 years as a specialist factoring broker this is the first time that I have ever been shafted by a factoring company.

We have had situations in the past where other factoring companies haven’t picked up additional associated companies also signing up but they have always paid me commission retrospectively when I’ve told them. A couple of months ago I spotted that a client of mine that went bust three years ago started up again the same month with the same factoring company and when I pointed this out to them they had no hesitation in paying me the backdated commission for the three years.

If any broker or introducer reading this is thinking of introducing business to Working Capital Partners I would strongly advise you to make sure that you have a watertight written agreement with them before you do so otherwise you may find yourself falling victim to their less than ethical behaviour too as if they have shafted me I’m sure that they won’t think twice about shafting you either. Another point to consider is that brokers and introducers are the lifeblood of independent factoring companies so if Working Capital Partners are happy to “shaft” a broker in their grubby search for more profit what do you think they would do to a client. I leave it to you to decide.

As a postscript it’s fairly obvious that we won’t ever introduce any further business to them so there is a space on our panel for a single invoice factoring company and for the benefit of those factors that have never dealt with us I would confirm that:-

We will never introduce any company to you that we know to be a “wrong ‘un”

We will never churn any client in anticipation of higher or more commission elsewhere

We will never twist your arm to take on a client that you aren’t happy with

We will never introduce prospects to more than one factoring company on the basis that whichever wins – we do

To show just how out of kilter Working Capital Partners’ behaviour is with industry standards I have noted below some comments made by board members of other factoring companies that we deal with.

 

Comments from other factoring companies

This is shocking behaviour


We always acknowledge the originating introductory source in these circumstances and have done for you Ian and other brokers in the past

Brokers are the lifeblood of the market and provide an invaluable service and should be rewarded accordingly

Thanks for your recent email and telephone conversation yesterday.

I can confirm that referrals from experienced  professional factoring brokers are vital to our business. We appreciate our commissions are your income.

If you referred a client to us and unfortunately the client left but decided to return within a short period of time we would definitely restart paying the commission due as  without you we would not have met the client in the first place

I am so sorry to hear what has happened with another provider.

We work in partnership with our introducers and treat each and everyone of them as gold dust. Working as a team together gets the right solution for the prospect client and this is the aim in all of your introductions.

If a prospect business leaves and comes back, then the relationship will still be classed as an introduction from you. Its all about reviewing long term relationships!

Not a good representation of the sector really is it.

‘I have always stated that an introduced client remains just that, for the life of the client, including any other directly associated business’.

Agreement to pay a specific introducer should follow that operating practice as without the introducer you would not have gained the benefit of the client in the 1st place. I have worked within the factoring industry at a senior level for 25 years, and this is how we have always operated’

Interesting move by Aldermore

It has recently been reported that Aldermore has taken a 48% stake in the parent company of a group that includes a commercial finance broking outfit called Asset Finance Solutions (UK) Ltd and another called Synergy Commercial Finance Ltd

This is an unwelcome step to the rest of the broking market who may be unwilling to introduce business to a finance company that owns one of their competitors.

is your broker independent or tiedThe home pages of both Asset Finance Solutions (UK) Ltd and Synergy Commercial Finance’s websites states quite clearly that they are independent commercial finance brokerages not lenders” but ethically how can they state that they are independent when a funder has a significant shareholding in the parent company as well as two directors on the board.

The home page of Asset Finance Solutions states quite proudly on their home page that “Asset Finance Solutions was formed in 2005 and has quickly grown to be one of the UK’s leading independent funding providers” which again is misleading.

Both company websites have either a blog or news section yet neither mentions anything that might cause readers to question exactly how independent they are as any comment concerning their new substantial shareholder is conspicuous by it’s absence. One wonders why the appointment of a new sales director is deemed to be newsworthy but the selling of a significant share stake to a challenger bank is not.

As a specialist factoring broker I have long refused to deal with Aldermore so their stake in a brokerage won’t affect me directly but I wonder how companies that approach either AFS or SCF expecting independent advice will feel if they are introduced to Aldermore without being told that they are significant shareholders.

Aldermore aren’t the first to try to buy market share by acquiring their own broking firm but it didn’t work out too well for the first factoring company that tried it and they quickly gave up the pretence and changed their subsidiary’s name to their own.

Presumably there are going to be a number of genuinely independent commercial finance brokers who will no longer wish to deal with Aldermore as they will be worried that their clients will find their way into the database of Aldermore’s broking arm and in all honesty I can’t blame them.

 

Factoring company sued for extortionate collect out charges

There have been a stream of complaints over the years about the alleged rip off charges imposed by some factoring companies on termination of their agreements, usually when the client has ceased to trade.

cash pileIn most cases there is very little that the client can do about it as if the company has gone bust the directors often don’t have the funds to launch a legal case so the factoring company gets away with it.

Termination charges have long been a large source of extra profit for many invoice finance companies with the chief executive of one such company telling me a few years ago that such fees made up 25% of their profits.

Finally one factoring client decided to do something about it as when Leumi ABL Ltd decided that a suitable fee for collecting out the ledger of their client Cobra Beer was an eye watering £1.216m but the guarantors of Cobra’s facility who would probably have ended up stumping up for the fees said that enough was enough and launched a legal case against Leumi.

Thumbs Down from Factoring BlogIt seems that the guarantors who had indemnified Leumi against all sums due and payable under Cobra’s invoice finance agreement (which included any and all termination fees which Leumi subsequently added to the account) paid Leumi the not inconsiderable sum of £950,000 but the factoring company deemed that not to be enough and demanded a further £490,000 but the guarantors had enough of the factoring company’s greed and launched legal proceedings.

When it came to court the judge deemed that Leumi’s actual costs in collecting out the ledger had amounted to £33,250 and that they should not have charged the client / guarantor and more than 4% of the amounts collected.

Far from having to pay the additional £490,000 that Leumi had demanded the judge decreed that the client / guarantor had already overpaid £735,000 and unless an appeal is launched it looks like the factoring company is going to have to refund a large sum of money. In addition to having to repay the vast majority of the fees charged by Leumi ABL it appears that they are also responsible for both sides legal fees which are rumoured to total £3m.

Leumi ABL don’t seem to be having a good year as in addition to having to repay these fees plus hefty legal costs they have also lost a substantial seven figure sum in the collapse of First Capital Factors which they were funding plus there are rumours doing the rounds of another substantial seven figure loss from the collapse of another of their clients and one must wonder how much more the parent company bank will put up with before pulling the plug or at the very least changing the senior management.

Although the Cobra Beer facility was probably invoice discounting with little or no sales administration provided by Leumi it never ceases to amaze me how some invoice finance companies can charge their clients a service fee for undertaking the administration of the sales ledger under a factoring arrangement then if the poor client ceases to trade they charge an additional (and often extortionate) fee for doing exactly what they were paid to do in the first place.

Hopefully this legal ruling will provide a salutary lesson to the greedier factoring companies who may well moderate their greed in the future.

Why brokers recommend Lloyds Bank Commercial Finance

Lloyds Bank Commercial Finance has just circulated a press release stating that any broker or introducer who introduces them to a factoring or invoice discounting client will receive a commission of 40% of their service fee for the life of the facility.

This is significantly higher than the industry norm and is potentially highly lucrative for factoring brokers many of whom will now start to introduce new clients to Lloyds Bank Commercial Finance for the their high rewards alone irrespective of whether that particular factoring company is the best fit for the company or not.

factoring brokers feeding at the troughRegular readers of the Factoring Blog will be aware that my opinion of the average factoring broker is already pretty low having referred to their behaviour as vultures in my previous post but the likelihood is that many brokers will shed off their vulture like scavenging and take on new personas  of the porcine kind as they queue up to feed at the trough that is Lloyds Bank Commercial Finance.

Unfortunately their behaviour will lower their standing even more as the main reason for the existence of specialised factoring brokers is to offer companies the benefit of their expertise and not to line their own pockets.

Discussing this press release with some of my factoring friends I was told by one that he had approached a new broker only to be told “Why should I deal with you when Lloyds Bank Commercial Finance will pay me so much more. That should really serve as a warning to any company who uses a factoring broker and finds himself introduced to Lloyds as it is highly likely that the introduction has been made in the broker’s best interests and not your own, which is a shocking state of affairs.

Another factoring friend asked who was ultimately going to be paying for this huge commission and they suggested that it was either going to be the client in the form of higher service fees or else the service levels would be pared back even more with an effective reduction in the factor’s sales ledger administration and credit control creating savings to fund the commissions.

A third factoring friend told me that a few of their introducers had already been in contact asking whether they would match Lloyds only to be told that they would gladly do so as long as the introducer didn’t mind them increasing the rates to the client to cover the increase as they didn’t intend to reduce their service levels to compensate.

Factoring Solutions  prides itself on offering an ethical broking service only ever introducing clients to what we consider to be the most appropriate factoring company for their needs. We have never dealt with Lloyds partly because there are independent factoring companies that offer higher service levels at comparative costs and we won’t be starting to introduce business to them now despite the high rewards on offer from them.

If any company wishes to speak to an independent factoring broker who places his clients’ needs above his own please feel free to contact Factoring Solutions on 01827 707680

Nucleus Commercial Finance join the ranks of knockers

KnockerRegular Factoring Blog readers will be aware that I have a bee  in my bonnet about companies within our industry that promote themselves by knocking their competitors and I have already outed Market Invoice and Simplicity for these practices and now it appears that Nucleus Commercial Finance has joined this select band.

Not only have Nucleus just come out with a promotion designed to frighten people away from their competitors but I received details of their E Book in an exceedingly patronising email from someone that I had never heard of:-

Hi Ian,

When securing invoice finance for your clients, you need to make sure they understand the additional fees the finance might come with, and the total overall cost. Question is, are you aware of the potential hidden fees?

No hidden feesThe E Book talks about the hidden fees in commercial loans but those allegedly hidden fees include take-one fees so they are obviously talking about invoice finance. Whilst I don’t deal with every factoring company and are therefore not privy to their operations, the ones that I do deal with and that includes the independent market leader are quite open about their additional fees with at least one giving all prospective new clients a schedule of possible additional charges along with the agreement before the facility has gone live.

Examples of the OTT quotes include:-

The Arrangement Fee –

A very common one-off admin fee to cover the costs associated with arranging the loan. Many companies are caught off-guard by the arrangement fee as it is often not presented upfront in the quote.

The amount varies and can be substantial: anywhere from 1% to 10% of the total quote. Payment is required at the start of the contract.

I have never come across any company that has been quoted 10% as an arrangement fee as to be honest the amount is just ridiculous. Most factoring companies charge a fairly nominal amount, typically £500 or so to cover the cost of documentation.

The take-on fee

A one-off service charge for recovering payment owed to your company from outstanding customer invoices. When work has been invoiced but payment has not been received, financial assistance in the form of invoice finance can be considered – at a price.

This take-on fee covers the loan provider’s costs associated with providing you with the amount owed to you, allowing your business to run as usual, and assuming responsibility for the unpaid invoice.

How much does it cost?

Typically 2% of the total value of invoices. The larger the invoices, existing or new, the larger the fee.

No hidden feesWith the exception of much larger invoice facilities it is fairly common knowledge that most factoring or invoice discounting clients will pay two charges. A service fee based on the invoices factored and interest on the funds advanced. These fees will be the first thing that most potential clients will ask about and will generally be confirmed by the factoring company in a written quote prior to being included in the Agreement so to say that they are hidden is rather laughable.

Charge per invoice schedule (or charge to fund same day invoices)

What is it?

This fee is generally considered the most unwarranted of the lot. Simply put, it is the cost your company will pay to a financial institution when funds are paid on the same day the invoice is processed. This service is more often than not presented as part of the deal, without making mention of any penalty fees.

How much does it cost?

At a cost of 1% of the total invoice amount per transaction, this lack of disclosure is, in our view, dishonest business practice.

No hidden feesNucleus may claim this to be the “most unwarranted of the lot” but again they aren’t presenting a true picture. Most factoring companies operate on the basis that funds will be available 24 hours after the invoices have been received in order to give them time to carry out their normal checks and due diligence etc but they will occasionally allow their client to draw funds early but this will incur a fee. Speaking as an ex operations type I am well aware that clients that want their payments prematurely cause a great deal of disruption to the daily work flow and the practice is therefore deliberately discouraged.

The final page of the E Book contained an alleged case study supposedly showing how one of their clients had been the victim of alleged hidden fees but unfortunately the Case Study doesn’t have the ring of truth about it.

Case Study

One of our clients is a printing firm who, before they started working with us, had been granted a funding line of £200,000 with a discount fee of 1.5% above the base rate (0.5%).

• The money was to help them grow after winning a large new client.

• They thought their fees would total £75,000 over three years.

Their loan facility contained several hidden fees:

This meant:

Arrangement fee – 5%

Survey/audit fee – £500 every 3 months

Trust account charge – 0.2% of paid invoices

Take/on fee – 2% of invoice value

They paid £10,000 as an arrangement fee and £4,000 as a take-on fee for invoices they brought on board

Every quarter they paid £500, adding up to £6,000 over the three years

They paid £2,550 for using the trust account their invoices were collected through

The true cost of the loan was £97,550 – a massive 30% increase on what they thought they would be paying!

 As I have already mentioned the case study doesn’t have the ring of truth about it as firstly they were allegedly looking at the cost over three years which is highly unusual but makes for a larger figure in the case study and secondly all of the costs and fees that they are complaining about will have been outlined in the original Offer Letter as well as the Agreement that the directors signed.

I do wish that companies such as Nucleus, Simplicity and MarketInvoice would promote their themselves by outlining what they have to offer and not by publishing half truths about what their competitors are allegedly doing and if I may finish by offering some advice to Nucleus on the wording of their emails I would suggest as someone who has been in the invoice finance industry since before the sender of the email was born that you look at the wording of future communications more carefully as I doubt whether I am the only grey haired broker who doesn’t like being patronised.

EDIT – A couple of interesting facts came to light after I published this blog post thanks to my ever helpful readers and they can be found in the comments section

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