One of my pet hates is factoring companies or in this case recruitment company funders who engage in knocking the opposition especially where in this case the rubbish spouted by Simplicity just isn’t true.
A couple of years ago Simplicity published an article on their website entitled “Beware the hidden costs of recruitment finance” which should have been filed under the heading Fairy Tales as it mainly fiction and I took them to task on the Factoring Blog back in 2016
They’ve done it again last month by republishing a similar article this time entitled “Is your funder restricting your growth?” which again contains much grade one garbage.
First Simplicity state:-
Many factoring providers will attempt to seduce you with headline rates, but this is likely to be a false economy for several reasons.
Firstly, you will pay interest on the amount advanced to you and there will be an additional amount to cover the finance provider’s administration costs (i.e. service fee).
The truth is that the factoring companies that offer a dedicated recruitment finance facility mainly do so with just a single charge with no additional charge for interest.
Secondly Simplicity state that:-
Secondly, the longer it takes your client to pay the more expensive your factoring facility becomes, with interest continually accrued over time.
As stated most factoring companies don’t charge interest on their recruitment finance facilities.
Thirdly Simplicity state that:-
Thirdly, perhaps most important of all, factoring by default imposes a concentration limit – the maximum amount the provider will cover for a single client. If you work for a large client, that accounts for as much as 20% of your total monthly billings and the concentration limits in place restrict you from gaining access to those funds, your business is going to run into some major problems
That was true 20 years ago but that hasn’t been the case for a number of years with many factoring companies happy to fund single customers as long as the customer is creditworthy and the paper trail good.
Fourthly Simplicity state:-
Suppose your factoring provider offers you a limit of £75k or even £150k – at the outset that may seem attractive. However, what happens once you hit that cap?
Quite simply you won’t get any money paid to you that week, which means you cannot pay your workers or other essential expenses either. All of which could see the recruitment business you have worked so hard to build and grow fall by the wayside within a matter of days. Can you really afford to take that risk?
Again that is a load of rubbish. It’s not in the factoring company’s interests to restrict their clients funding as the higher the client’s turnover the more commission the factor earns.
Facility limits tend to be reporting limits and once that limit is approached the factoring company’s relationship manager will write an internal review and invariably the facility will be increased in line with their client’s sales projections.
To prove just how untrue most of the above is I would suggest that any recruiter looking for funding and back office should obtain a quote from Simplicity if they so wish then feel free to contact us and we will introduce you to a traditional factoring company that has a specific recruitment finance offering that will offer a bundled fee with no separate interest charge, no long term commitment but one month rolling contract only, no minimum fees and who will fund all of your debtors no matter what proportion of the total your largest customer is (subject to creditworthiness) with the icing on the cake being that in most cases they will also be cheaper than Simplicity.
Contact Factoring Solutions on 01827 707680 to see what our small panel of expert recruitment finance factoring companies can offer.
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.
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.
In 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.
It 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.