Fraud in the factoring industry!

It seems like moral standards in this world continues to plummet as time passes. We have seen scandals in big business with WorldCom, Enron and the likes. So many people lost hard earned money, their retirement funds down the drain. Trusting those in charge ended up being another let down in humankind. Greed stole their conscience.

I think it is fair to say that no one likes to be ripped off, heck even hard criminals kill those that they catch ripping them off, how bizarre is that.

The point to my post here is to give you some insight about the factoring industry and why factoring companies have things in place like notifications and verifications.

Many times people looking into factoring will get uncomfortable when they are told that their customers will be contacted by the factoring company to verify the invoices. One of the reasons mentioned is usually that they do not want their customers to think they are in financial trouble. This is such a incorrect view, every company on the planet has to have working capital, so if you get a loan or a line of credit from a bank does that mean you are in trouble?

Part of the agreement in a factoring relationship is that once the factor advances on the invoice, they are owed the payment. One of the common ways factoring fraud is committed is that the payments on a factored invoices will be mailed to the factors client instead of the factoring company. Instead of notifying the factoring company about the mistake and forwarding the check, they will deposit the check. It is later discovered and instead of finding out a mistake was made, the client keeps the monies and legal action begins.

Another example is phoney invoices. A company will create invoices to sell to a factoring company that are not valid.

You have to understand that anytime you are obtaining money from an institution the contracts are heavily on the lenders side. Who would blame them, they are taking a risk as long as the monies are out. So a factoring company is no different, they have certain things in place to protect them as much as possible. The fact of the matter is; as long as everyone plays by the rules, no contract will ever have to be enforced

Thanks for reading!.

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