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.
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.
It 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’
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.
The 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.