Due to our Non Recourse Factoring program, we have become pretty prominent in detecting fraud. While it is not always 100% preventable, there are some measures to take and be aware of to keep it from happening to you as a loan broker. With the current tough economy and its increasing continued downfall, fraud has been more prevalent than ever.
Business owners who are willing to commit fraud will generally go to great lengths to create a false scenario in order to convince a factoring company to provide them with funding. Especially with the Internet and all access to technology today. Fraud is increasingly easier to execute, because of all the tools and document creators easily accessible to forge purchase orders and invoices. Some will even create fraudulent debtors and set them up with fake webpages and contacts in order to throw off the factor.
When setting up a business with a factoring discount, make sure all the invoices and debtors are real. There should always be communication and verification for every single invoice between the factoring company and the debtor.
Also, if the business owner’s credit isn’t up to par, looking into the possible reason for their bad credit, you may encounter a problematic financial past.
Before providing factoring, we make it point to be sure that a representative has contacted the business owner numerous times through various communication channels- phone, email, video conference, or in person further verifying the persons identity.
Here Are Some Red Flags We Look For:
A Demanded Urgency For Funding – Be wary when the business owner is so focused on receiving funding quickly that they don’t seem to mind the rates and terms associated with the agreement.
Refusal To Provide All Identification Information – Regardless of bad credit, a business owner can still receive funding as long as they prove they are real, through providing legal documentation such as their social security number, proof of residential address, phone number, and driver’s license. A lot of factoring is done long distance so factor companies do not always meet there funding prospects before providing funding, which is why it is necessary to receive the documents mentioned in order to verify their identity.
Neglect To Provide Current Business Financials & Other Operating Documents – Documents that should be provided by the business owner without hassle are: documentation of the business’s physical location, the previous years’ tax returns, a balance sheet, and a copy of the contract between the business owner and their customers/debtors.
Don’t be afraid to ask the business owner about their inability to provide any of the above. The more you know about the company’s situation the better you can assess the business to see if you are willing to fund. You can never be too cautious when it comes to lending lump sums of money to companies you are not familiar with.