Factoring Ethics

Poaching

 

What is poaching in the factoring industry?

Poaching is an unethical practice in which one company, that has already signed a contract with an annuitant, will be outbid, or at least promised an outbid, by another company seeking the annuitant’s business.  The annuitant will, despite the contract, go with the other company’s (presumably) higher bid and sign a contract with them instead of the original company.

 

Why is this problematic?

Poaching is unethical for several reasons, the first being due to the nature of contracts.  If contracts can be signed and then so easily set aside this nullifies the legal significance of contracts altogether.  If contracts are no longer legally binding, what is to stop anyone, at any time, from making contractual agreements and then ignoring such agreements when it becomes inconvenient to them?

 

There is a slippery slope when disregarding the legal power of contracts.  Certainly, an annuitant violating a contract with a factoring company is a legal problem, but this isn’t a problem that should occur in the first place.  If a contract is signed, and a competitor is aware of this, they should be aware of the extraordinary ethical breach that obtaining the annuitant’s business presents post-contract signing.  To willingly engage in the practice anyway represents a blatant disregard for fair business practices.

 

In an industry already marked by overly aggressive sales tactics, scraping, etc. not engaging in fair business practices with competitors is even more troublesome.  In the event that a contract has not been signed between an annuitant and a factoring company and the company has been outbid by a competitor, it is absolutely fair for both the annuitant and the competitor to rejoice in their business relationship – as this is an essential part of a fair marketplace.  However, if contracts are being disregarded so easily by competitors then there stands an even greater issue: what makes such a competitor believe that the contract that they would sign holds any greater strength than the one already in violation?  Unethical activity does not beget sudden victory in business transactions; a dangerous precedent of ignoring contracts is set and thus only additional unethical activity can logically result.

 

The worst case scenario is that it degenerates into frequent litigation merely to enforce contracts that should not be threatened by competitors to begin with.

 

The second reason that poaching is unethical is due to what amounts to the theft of another company’s marketing outlay.  This is due to how poaching is accomplished in the first place.  Poaching isn’t just two competitors in contact with an annuitant in attempts to undercut each other in typical sales fashion.  The poaching company is perusing court records regarding pending factoring transactions.  The company will then swoop in and make the undercut after the deal has already been struck.  This is problematic because of the associated costs of trying to get business to begin with.  The company, with contract in hand, has spent money on advertising, working with annuitants over untold number of hours working the case to his or her satisfaction, costs associated with traveling to conferences, making calls, and generally just going about the daily routine of doing business.  These costs of doing business are always passed on to the consumer; it’s the nature of business.  Therefore the biggest issue with poaching is that the cost of doing business has been drastically reduced by their ability to undercut a competitor who has a contract signed and has spent that money on a deal that would have been theirs by virtue of both having a contract and having spent money and time on the case.

 

There are those in the industry that approach the issue of poaching with apathy or even approval because, they reason, the annuitant is ultimately getting a better deal in the end.  This is problematic reasoning for two reasons:

First, companies that have conducted themselves in ethical and legitimate manners are not recouping the cost of doing business.  They’re essentially robbed of their income.  This is no different than parasites who fatally consume their hosts; while it may seem benign at first, the end result is not.  Loss of business in this fashion results only in either more shady sales tactics or the collapse of ethical companies in favor of the unethical.

 

Second, in what other business would this practice be regarded as tolerable?  Suppose for a moment that you needed a judge’s approval to buy a car and the application for this approval is public record.  The typical dealer has the cost of a showroom and lot, advertising to get you in the door, the salesman’s salary to show you the car and to go through all available options, upgrades, etc. all before you sign the contract.  Now somebody calls you, says the dealer is ripping you off and can sell you the exact car for much less, all without the business overhead that has to be recouped during the final sale.  This is not fair competition, it’s simply underhanded theft.  The result is, again, the elimination of ethical business in favor of the underhanded.  In the end, annuitants are not winning – they’re losing; they’ll be dealing with unethical companies by default.

 

What can be done about it?

Poaching is a very specific problem with several very simple solutions.  

 

• The factoring industry ceases such behavior and resumes respecting competitor’s contracts.

 

• A factoring deal will represent too great a profit for a company and it will engage in a lengthy, expensive, bitter lawsuit with a competitor to enforce the contract.  This opens the gates for even greater litigiousness in an industry that’s already wrought with it.  More than such costs, it puts the industry in a difficult position of having to justify why such poaching practices occur to begin with, and why factoring should even be permitted to exist when its reputation is already on unsteady ground.

 

• Poachers can be exposed.  This should dissuade some from engaging in this unethical business practice.  For the rest, the default solution is litigation.

 

The industry should self-regulate this practice without drawing more negative attention to itself.