As in any financial business, from time to time some factoring companies face bad players intent on defrauding them with fabricated or inflated invoices. The factoring company trusts that a client’s customers will pay on those invoices, but the client knows that no payment will be coming. In these cases, typically there is some kind of collusion and collaboration between a client and a customer where both parties intentionally plan to receive advances on fraudulent invoices. These types of fraud can be costly to a factoring company, which may be forced to raise rates across the board to recoup losses and reduce risk.
To keep their factoring fees as low as possible, top factoring companies work hard to detect fraud and turn down clients and paperwork that raise red flags. With in-house credit bureaus at leading factoring companies, clients’ customers are carefully screened to ensure that they can be trusted to pay for the work that they received. Further exploration reduces the risk of non-payment.
Fortunately, factoring companies rarely encounter fraudulent dealings and rarely experience business loss from intentional manipulation or falsification of invoices. Today’s technological oversight and human vigilance have reduced cases of factoring fraud and incidences are increasingly rare and far-between. Among the strategies that have been put in place are setting conservative credit limits for new clients or new debtors. Once their reliability has been established, those credit limits are raised.
Let’s take a look at some of the types of fraud that factoring companies can encounter:
- Collusion between a client and a customer or subcontractor to submit an invoice for work that had already been paid.
- Collusion to submit an inflated invoice for work completed.
- Fraudulent notice of assignment or notice of assignment signed by person without authority.
- Fraudulent verification of completed work
Veteran factoring professionals watch for cautionary signs of potential fraud with new clients:
- Reluctance or refusal to provide necessary business documentation when applying for factoring.
- Suspicious urgency to factor with no interest in discussing rates or processes
- Continued and varied excuses from debtors and clients regarding payment.
- Loss of all contact and refusal to respond to messages and phone calls.
Interstate Capital, one of North America’s leading invoice factoring companies, protects itself against fraud with exceptional credit checking practices, due diligence in reviewing potential clients’ applications, experienced underwriting team, and a management team with almost 25 years of expertise and instincts. Without business losses from fraud, Interstate Capital can provide affordable factoring rates and high advances to clients. Interstate can focus on what they do best: partner with clients to grow their business and increase their profitability. When you’re ready to expand and improve your cash flow, reach out to the experienced factoring professionals at Interstate Capital.