Fraud and Misrepresentation Regarding invoice factoring business

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Invoice Factoring accounts for hundreds of billions of dollars in business each year. Although many business owners are not aware that they can get instant capital by monetizing their accounts receivable through factoring, it is commonly used as an alternative to traditional banks. Recession has caused many financial companies to suffer and factors has helped these companies to accelerate their cash flow in order to survive. Unfortunately, there are unscrupulous and desperate individuals trying to control and oppress the factoring company to increase its cash position.

The whole procedure of factors is fairly simple. The customer will invoice the customer for goods sold or services rendered. The customer has accepted the goods or services and promises to pay the bill in terms of the customer. Instead of waiting 30 to 60 days to get paid by the client, the client submits bill to factoring companies and receives advance based on a percentage of the account. This rate is anywhere from 70% to 90%, depending on several factors such as the type of industry, the creditworthiness of customers and the length of time in business. The advance is immediately wired to the account of the client. The client mail a payment paid to the company lockbox controlled by the factoring company. The factoring company remits the reserve (the invoice total less the amount that was developed) minus Factoring fee. The transaction is now closed. If all factors situation went like this, it would be no problem. But when fraud and treatment comes into play, it changes everything.

The most common way dishonest people rob the Factoring business is by submitting false or inflated account for progress. Usually this is done after the relationship has been in place for some time and factoring company has developed a comfort level, especially with certain debtors. These phony bills can be done very easily with modern software and a cheap printer. They can do with existing debtor factoring company recognizes or imaginary customers. Typically, phony accounting along with some legitimate ones and funds are collected.

Since the money will never be “collected” would not factoring company asking for the customer to repay the money or replace it with another account? Usually it would be the case, but fraud is usually maintained by the customer submits another fake account in advance and use the funds to pay first. It fraudulent invoice is paid with the proceeds phony invoice 3. In fact, the client is floating on an interest-free loan to unlimited or until they are caught.

Most factoring companies that keep business for any length of time will put a system in place that will detect fraudulent everywhere before it can spin out of control. Verification is the cornerstone of this system. This includes not only the confirmation of the amount invoiced and legitimacy, but also to ensure the initial information provided for each debtor applies. Since the element has such tremendous exposure, they manage payments require debtors to all payments to lockbox. They have to verify the information provided by debtors independent sources, not just by the customer.

The relationship between the factoring company and the customer should be cordial, yet completely professional. Examples of how the business relationship became too personally was when the client began dating employee of factoring company. He learned of the new girlfriend factoring company only confirmed invoices greater than $ 800 with the information, he suddenly flooded Factoring company with several phony bills between $ 600 to $ 700 each. By the time the owners episode caught on, their impact was over $ 100 thousand dollars. They could have sued the client, but knew that to do so would put the client out of business, which would cause economic peril for themselves. They had no choice but to ride out and hope it would be fine.

Most people are honest, but it only takes one or two bad apples to put Factoring company in a precarious position. That is why verification stable is important for factoring companies to function.

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