As most factoring insiders will know First Capital Factors Ltd collapsed into Administration two years ago and whilst plenty of rumours were doing the rounds at the time nothing concrete ever appeared until last week.
First Capital Factors Ltd was a small factoring company run by the high profile David Marsden and was funded by means of a back to back arrangement with Leumi ABL Ltd plus loans from Thincats.
According to the press release issued by the Insolvency Service, Marsden colluded with the factoring company’s clients to raise false invoices and he then used these invoices to fraudulently raise £4.3m from Leumi ABL Ltd
Although one has a certain amount of sympathy for Leumi ABL for being defrauded they should possibly have spotted the signs earlier but my sympathies lie with the individuals in the Thincats syndicate who won’t see any of their collective millions back.
These weren’t all high net worth individuals who could afford to lose money but people like you and I looking for a slightly higher return on their savings than the miserly rates offered by the banks.
Whilst these individuals may have been aware that some companies perform better than others I doubt whether any of the individuals expected to be defrauded out of their savings by such a supposedly well respected person within the factoring industry who included the past chairmanship of the Asset Based Finance Association on his illustrious CV
If a year’s bankruptcy (now expired) and a ten year ban from holding a directorship is the sum total of Marsden’s punishment then he has got away lightly as forty years ago a similar thing happened at Bank of America’s factoring company and the two executive directors who orchestrated a remarkably similar fraud both ended up in prison for three and four years as well as the bosses of the companies that had participated in what the media called “The great loans swindle”
There must be more to come from this debacle as there was collusion from various clients who have also committed fraud and surely the staff at First Capital Factors must have had verification procedures in place for what I guess must have been substantial invoices.
In addition every factoring company that I have worked at have had monthly board and/or management meetings which have included detailed discussions on the client portfolio so I guess that this story has not reached it’s conclusion yet and there must be more people who jump every time the front door bell rings.
I have received a letter from Simplicity’s solicitors threatening legal action for defamation as they claim that I have made untrue statements about them on my blog.
They claim that concentration limits are common with factoring companies and cite an article by a factoring broker which was designed to paint a worst possible picture in the hope that readers would contact them to find them a suitable factoring company with further examples being provided from another factoring broker’s website which was published for the same reason.
They further claim that facility limits are finite limits as per a paper produced by ABFA without pointing out that they are like credit card limits and subject to renegotiation as and when necessary.
Simplicity are payroll funders providing back office facilities to recruitment companies in conjunction with working capital funding. That they should be trying to compare themselves to standard factoring companies is like trying to compare apples and pears as the products are similar but also different.
What Simplicity fail to mention is that there are several factoring companies that offer a back office facility and that it is these factoring companies offering a similar product to them that in general do not suffer from the disadvantages mentioned by Simplicity.
The solicitors have requested the following:-
In the circumstances, we urgently seek the following remedies from you:
Removal of the Article from the Website.
Publication of a suitable apology in a prominent position on the Website for a period of at least 14 days, and thereafter archived indefinitely so that it remains searchable.
Your undertaking not to repeat the allegations complained of.
I have removed the original post from the blog and I do apologize for not making it more obvious that I was referring to factoring companies offering a recruitment finance package in competition with Simplicity’s own product and not factoring companies in general.
Early last year I wrote a blog post condemning Lloyds Bank Commercial Finance for their offer to factoring brokers to pay them 40% of their factoring commission income for the life of the facility.
The point that I made at the time was that this commission rate “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.”
Judging by their recent press release it appears that my fears were justified as it seems that so many greed driven factoring brokers drove their client base towards Lloyds that they have now set up a dedicated broker team to cope with the influx of business.
Lloyds claim that since they introduced their new commission structure the number of broker deals has more than doubled which bears out my concerns as the product hasn’t changed which leaves the broker’s commission income as the driver. Surely anyone apart from the pigs with their snouts in the trough will see that this is wrong as a broker is supposed to add value and if these people are just introducing business to Lloyds Bank Commercial Finance so that they can grab a bigger slice of the pie for themselves then that is morally wrong.
It isn’t just new factoring clients that are likely to be directed towards the brokers’ money tree that is Lloyds Bank Commercial Finance but existing clients whose current factoring arrangements are up for renewal will also be targeted and persuaded to switch as that will be even more lucrative for the broker than a new client in many cases.
Factoring Solutions receives a variety of commission rates from the different providers that they deal with but none anywhere near what is on offer from Lloyds Bank. Despite that we are happy to continue with our current provider panel happy in the knowledge that we are adding value to the client and not our own bank balance
I’ll end this short blog post by re-iterating the post title and if any prospective customer finds that their broker is trying to introduce them to Lloyds Bank Commercial Finance think hard about whether that is because it is the best fit for your business or else it’s because 40% of whatever Lloyds make will be returned to your broker as commission.
I’m sure that Working Capital Partners and it’s owner Perry Burns will be pleased to know that this post will be my final words on his company.
My original post had an amazing response with over 500 unique views and with much of them coming from the various factoring groups on LinkedIn there can’t now be many decision makers within the factoring industry that haven’t read it or don’t know what he and his company have been up to. Many have contacted me to share their own views on Mr Burns’ actions and not one single one of them have even come close to agreeing with what he did with “Shooting himself in the foot” being perhaps the only one of many quotes that are printable in a family friendly blog.
As I mentioned in my last blog post I posted a pretty poor review of the company on Trustpilot titled “Not to be trusted by the broking community” and giving the company the minimum of one star.
Judging by the flurry of positive reviews that followed, Perry Burns rounded up some of his mates and asked them to try and redress the balance by saying some nice things about his company.
One of the brokers who gave him a positive review was the subject of a previous article on Factoring Blog as he was one of three directors of a factoring brokerage that went bust in such a spectacular fashion that one of his co-directors was made bankrupt and banned from holding a directorship for four years. A good referee indeed 😀
Part of the above’s reference is that “Working Capital Partners are run by a very experienced management team.” The two main board directors don’t have any factoring experience at all prior to setting up their company whilst the Director of Commercial Operations isn’t actually on the board at all and has previous employment on his CV at one of the few factoring companies to go bust.
Working Capital Partners obviously take their Trust Pilot testimonials very seriously as they have a testimonial slider on the front page of their website in which one after the other of the wonderful testimonials are presented to the world for the reader’s consumption.
Oddly enough the one star testimonial left by Factoring Solutions never appears at all so it seems that whilst I don’t understand the technology involved the company have found a way of excluding their negative reviews. Is that misleading or dishonest or both. I leave it up to the reader to decide.
Looking further into the company’s website the section entitled Team / Our Roles states that Perry Burns is a member of the Asset Based Finance Association’s Executive Committee, the body responsible for setting and enforcing standards across the industry.
I won’t comment on Perry’s suitability to be sitting on the body for setting and enforcing factoring industry standards but he would be the last person I would choose and from the many comments made to me by senior factoring personnel I am not alone in that thought
The fact that Working Capital Partners Ltd is even a member of what was the Asset Based Finance Association is surprising as the association states that one of the criteria for membership is that “The company has a net worth in excess of £250,000”
According to their last published accounts Working Capital Partners Ltd has a share capital of just £1,000 which is probably the lowest in the business by an ABFA member by a long way and the company seems to be propped up by loans without which it would be technically insolvent.
I set up the Factoring Blog nearly ten years ago to write about some of the things that I didn’t like about the factoring industry as I was in the fortunate position of not having to be reliant on anyone within the industry so could say what I felt. In all those years this is the first time that I have had to write about something that affected me personally and whilst Perry Burns probably felt quite smug when he took the decision to shaft me and my company out of the (fairly substantial) commission that EVERY other factoring company would have paid I hope that he thinks twice about doing it to anyone else.
Obviously I will never deal with his company again and his loss has been the gain of both Creative Capital and Calverton Finance as I have already passed them a single invoice factoring lead each which will hopefully be the start of a more mutually beneficial relationship with the former and the continuation of an excellent relationship with the latter.
I will finish the miserable saga of Working Capital Partners with the same warning that I started with that if Perry Burns is happy to shaft me in pursuit of a few more pounds on his bottom line what makes you think he won’t do the same to you too as after all one of the better known quotes from the bible is about the inability of either an Ethiopian to change his skin or a leopard his spots.
I think that it’s fairly obvious that I am rather angry about the underhand way that I have been treated by Working Capital Partners Ltd and seeing that one of their other introducers left them a five star review on Trust Pilot I thought that I would leave my own views on there too.
My review generated the following response from Perry Burns:-
I’m am truly sorry Ian, that you feel like this and that you have chosen to air your grievance in this way. It is absolutely not standard practice as you state. Our broker agreement specifically anticipates and excludes this circumstance. Just as our clients pay no monthly administration, monthly minimums or termination fees, so our introducers’ entitlement to commission ends if or when the agreement terminates. It is interesting that after the client realised what he had lost by moving to another Factor – in terms of flexibility, personal service and bad debt protection; he came back to us directly and not to you. In fact when I spoke to him, he expressed surprise that you had continued to be paid commission (at very substantial levels) even though all you had done was to pass on a name and phone number two and a half years ago. It is important to realise that ultimately it is the client that pays the commission and while we think it is right and fair to compensate an introducer for putting us in touch with a potential client, we do not agree with you that this represents an automatic right for us to load a client’s fees once the introduction has lapsed and the agreement has been terminated. Perry
Comments on Perry Burns ridiculous response
I have several comments to make on Perry Burns’ response starting with his comment of me “choosing to air my grievance this way” I really don’t know what the company expected me to do as once they had said that they didn’t intend to pay me any further commission, dialogue with them was effectively over. I can’t respond on Trust Pilot so have chosen to use this blog to air my grievances.
Secondly Perry Burns claimed that the client said that “all you had done was to pass on a name and phone number two and a half years ago” which was effectively true although the client had never heard of spot factoring so I had to sell the concept to him. Furthermore Mr Burns seems to be ignoring the fact that I introduced this very lucrative prospect to his Working Capital Partners and not Creative Capital or Catalyst Finance or Interface Financial Group all of whom would have gladly accepted the business and probably wouldn’t have screwed me in the process.
Perry Burns shows how out of touch he is with the factoring market
Mr Burns states that paying commission on a client that leaves and swiftly returns is “absolutely not standard practice” which I believe shows how out of touch he is with the whole factoring market as not only is it very much standard practice but I have posted comments from directors of four separate factoring companies on my original blog post confirming that it is very much standard practice and if Mr Burns is not happy with those four I can easily get some more.
I’m intrigued to know why if Working Capital Partners didn’t intend to pay my commission on the return of the client did Andy Phillips the Director of Sales telephone me to give me the good news that they were returning?
Mr Burns states that their broker agreement “specifically anticipates and excludes this circumstance” but I will have to take his word for as I have never seen his agreement and as previously mentioned have always done business on the basis of mutual trust.
I do find it rather an odd clause to put in a broker agreement though and if true I can’t see the higher profile larger broking outfits signing it or even agreeing to it.
Two or three years ago when ABFA brought in some recommendations from their Professional Standards department many factoring companies did send out broker agreements and I checked back over some agreements that I received from other factoring companies and as expected none of them mention such an eventuality at all. Needless to say I didn’t receive one from Working Capital Partners at all.
Mr Burns further claims that “It is important to realise that ultimately it is the client that pays the commission and while we think it is right and fair to compensate an introducer for putting us in touch with a potential client, we do not agree with you that this represents an automatic right for us to load a client’s fees once the introduction has lapsed and the agreement has been terminated”
Yet again this is at odds with standard industry practice as introducer commission is a cost that is normally borne by the factoring company. There are a couple of large broking outfits that insist on introductory commissions far larger than the industry norm and if Mr Burns’ comment that their commissions are loaded onto the clients’ fees is true then they would never sign anyone as they would be hugely uncompetitive
Obviously I won’t introduce any further prospects to Working Capital Partners as if they are happy to screw their brokers I dread to think how they would treat their clients.
I was chatting to an old factoring friend who had moved over to a spot factoring company and told him that I was on the lookout for a new provider.
He seemed quite shocked when I told him what had happened and confirmed that if I introduced a client to them that went away and returned within a few weeks they would continue to pay the introductory commission.
I also asked him if they charged a higher rate to companies that came via a broker to those that came direct and he confirmed that they would not and that broker fees were an overhead that they absorbed.
The icing on the cake is that their standard fees factoring fees are actually lower than Working Capital Partners.
As an end piece to this post I received an email from a major factoring company last week telling me that an introduction of mine several years ago that went bust in October has now set up again and the newco will be marked as an introduction from myself.
I’m glad that there is still integrity in the majority of the factoring world.
Four comments from factoring company directors below showing just how far Mr Burns’s comment that to continue paying an introductory commission to a company that leaves and returns very quickly is “absolutely not standard practice” is not borne out by the factoring world in general.
(please see additional information in the form of comments here
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’