factoring fraud

A moral dilemma

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I have been approached by a company who complained about the service that they were receiving from their factoring company and who asked me to find them a replacement. It would seem that the factor was being very strict on concentration limits and wouldn’t fund more than £30,000 on their major customer whereas they were trading at £70,000 per month with them. When discussing the creditworthiness of the customer the chap told me that they would never not pay their bills as they were actually silent shareholders in his company.

There were three possible ways to play this as I could have tried to find him another factoring company without disclosing to them that the major debtor was an associate and earned myself a nice commission in the process or else I could have told him that no factoring company would take him on and fund an associated company if he came clean about it or I could have refused to handle the enquiry and have a quiet word with the factoring company.

It is a bit of a moral dilemma as prospective clients discuss their business with me in confidence and expect me to either find them a replacement factor or else to drop it completely but there again I would have a struggle with my conscience if I knew that a company was effectively defrauding a factoring company and I did nothing about it.

I struggled with my conscience for ten minutes then had a quiet word with someone at his factoring company and warned them

Interesting article on factoring fraud

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The Birmingham Post have published an article today under the heading  “Factoring fraud is tempting but always detected.” The article goes on to say that most factoring companies take a personal guarantee from the directors so they could become personally liable for any fraudulent invoices raised by their staff without their knowledge.

I suppose that on very rare occasions this does happen and I do know of one recruitment company where the manager has been raising fresh air invoices to cover up the fact that he hasn’t managed to do any genuine business and the company owner ( and guarantor ) was unaware of this and now has to worry about repaying the factoring company’s investment but I’m sure that most industry insiders will agree that 99% of all factoring fraud is perpetrated by the directors themselves.

All factoring companies will have suffered from client fraud at some time or another with rumours of some pretty major frauds circulating throughout the industry including Cattles and their recent £600,000 loss in Scotland or Close and their nine figure loss in their Manchester office but I think that the newspaper’s headline that “factoring fraud is always detected” isn’t necessarey true.

There are some fraudsters who set out on day one to line their pockets at the factors expense but the majority fall into it almost accidentally as they find that the company has a temporary cash flow problem so they issue a couple of fresh air invoices in the belief that cash expected in next week will allow them to cover up the fiddle. Tomorrow never comes and the cash flow problems increase so they compound the problem by issuing more and more dummy invoices but always with the thought in their minds that the problem will right itself next week.

We only know about the instances where tomorrow never comes and the fraud is found out but I wonder how many times people do get away with it.

 

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