Urica: How invoice finance fraud dragged an ambitious fintech under

Reverse factoring platform Urica seemed like a rising star in the British fintech landscape. But its already shaky books were dealt a fatal blow by fraudsters.

When Edinburgh-based invoice financing platform Urica collapsed in July of this year, it was not a pile of bad debt receivables that brought it under. Nor were its increasingly heavy administrative costs, which pushed expenses up by almost £1m between 2016 and 2017.

What killed Urica was –it later transpired – a single, massive instance of invoice finance fraud.

The company, incorporated in 2012 and operating in the UK and France, seemed among the most promising projects in Europe’s SME-targeted fintech space. Urica’s directors were keen to describe it as a provider of “supply chain funding”: a cash-creating product for SMEs, as opposed to a debt-fuelling scheme for top-grade firms.

Effectively, what Urica provided was “reverse factoring”: a form of financing where the lender pays a company’s suppliers upfront and later recovers the money from said company.

Barely a year after its inception, Urica received £10m (€11.3m) in wholesale capital from a fund set up by the Conservative-Liberal Democrat government to incentivise non-bank SME lending. It later struck a partnership with Euler Hermes, the credit insurer, and got a publicity boost when water industry association British Water began introducing Urica to its members.

"What Urica provided was “reverse factoring”: a form of financing where the lender pays a company’s suppliers upfront and later recovers the money from said company.”

Admittedly, Urica’s balance sheet was not the rosiest. Accounts filed by the company in January of this year showed expenses piling up into the millions, while turnover – however fast-growing – remained in the low hundred-thousands.

Revenues totalled £232,181 in the year to March 2017, up some 140% from 2016. While this covered the cost of sales, it was vastly outstripped by total administrative expenses, which increased 70% to over £3m. The bottom line for Urica was merciless: loss after tax credit was £2.5m, compared to £1.7m for the previous year. Economy of scale just seems not to have worked for the platform.

Receivables for debtors – a good proxy for the amount of factoring business Urica was writing – more than doubled over a year, reaching just short of the half-million mark in 2017. But the amount due to the company’s own creditors was also taking its toll: Urica had some £650,000 to pay off by March 2018, and it is not clear how much of it had been fulfilled by the time the platform officially went into liquidation in late July. The amount lent out by the government in 2014 had been apparently fully repaid, according to a report by AltFi.

"Economy of scale just seems not to have worked for the platform.”

On July 23rd, asset manager Artemis Capital gave news of Urica’s liquidation to investors in one its funds, which held a £5.5m equity stake the platform. Lindsay Whitelaw, Urica founder and a partner in Artemis Capital, later confirmed to AltFi what had already been mentioned in the investors notice:

"The fund we manage suffered a large fraud in France at the beginning of the year and as a young business we have been desperately trying to recover from that event,” he told the publication.

“Other financial institutions were also defrauded by the same client, but because we are relatively small and at a formative stage in development this has had a much greater impact on us,” he said, adding that Urica had sought a liquidity injection from investors, which they had been unwilling to provide.

On Urica’s ghost website, a notice reads: “We are working closely with alternative reverse factoring providers with a view to supporting any future needs you may have for this type of product.” So far, nothing of the kind has been publicly revealed.

It is hard to say whether Urica could have absorbed the hit from the fraud had its books been more resilient. But considering that two other beneficiaries of the 2013 governmental fund – fellow fintech MarketInvoice and direct lending fund manager Beechbrook Capital – have seen their businesses flourish since, one cannot help but wonder whether things could have turned out differently for Urica – with a bit of luck.