Fraud, whether it is pre-meditated or circumstantial, remains the biggest threat to all factors and invoice discounters. The members of the invoice finance sector (discounters) are only too aware of this, yet fraud still remains and is growing in line with the speed with which the sector expands.
None of the discounters are immune to fraud but some are better at highlighting and deterring it than others. The fraudster will always find the path of least resistance and so will prey on those most desperate to complete a deal. These are sometimes also those with the weakest controls and checks. Often a lot of time and effort is put into a new deal to find that it falls down at the 11th hour due to 'irregularities'. The time and effort is well spent if it means that a potential fraud is deterred. There are no short cuts to underwriting and due diligence has to remain thorough and tight.
In an ideal world, the hours of work put in at the front of a deal will deter a premeditated fraudster, who will opt for a less diligent discounter. Having said that, we do not live in an ideal world and almost every month we hear of pre-meditated frauds. So the fraudsters seem to be getting smarter.
We recommend that the deepest searches possible are undertaken on the individuals, and their current and previous companies where they act as director and also shareholder. Search their names in popular sector websites such as PrintWeek or TruckUK and read the blogs. Undertake a name search of newspapers in their local area as well as national newspapers. Take references from respected sources and always be guided by your gut feeling.
Circumstantial fraud is far more common but no less devastating. It can happen to anyone and often catches the discounter off guard as it is sometimes the most established and well respected client which is the perpetrator. As the economy slowly eases itself out of recession and clients start to chase turnover again, the incidence of this type of fraud will increase. Many clients will have arrears built up to HMRC and possibly rent arrears too and the temptation for some to pre-invoice the next big contract will be great. The best way to pre-empt this is to get out and see your clients more, totally understand where their business is and talk with them regularly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.