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Invoice finance fraud – Spot the signs, before it happens PDF Print E-mail
Wednesday, 08 November 2017
The features that make Invoice Finance the funding mechanism of choice for growing businesses are also those that make it most vulnerable to misuse.

With confidential invoice discounting arrangements, the lender doesn’t see the invoices, and validation at audit is infrequent. Customers collect the payments on behalf of the lender. This makes facilities unobtrusive – but vulnerable to misuse. Although relatively rare, when a fraud occurs, losses can run into millions.

Invoice Finance lenders have a number of standard risk management processes, and these are based on two main principals:

1) Reliance on the strength of the business
2) Reliance on the quality of the people within the business.

Yet, trust in the people can be misplaced and profitable businesses can run out of cash. And the hands-off nature of the standard controls gives the fraudster ample opportunity to manipulate the sales ledger to obtain increased lending to support the failing business.

Typically, this is achieved by:

• Creating invoices for sales that do not exist
• Reallocating older invoices into current month to avoid withdrawal of funding at 90 days
• Not advising lender of Credit Notes raised
• Failure to advise of disputes or other reasons for non-payment
• Diverting debtor receipts to another account and keeping the invoices as unpaid
• Recycling new advances as collections against older fictitious invoices
• Falsifying accounting records to disguise fraudulent transactions

The Lender’s monthly sales ledger reconciliations and routine Audits are designed to deter and spot frauds. But often they fail to do so. With a falsified sales ledger and forged supporting documents like delivery notes and remittance advices, it is possible to mislead and misdirect the most diligent of auditors.

However, the signs will always be there somewhere - clues in turnover and collections trends, in the utilisation of the facility, in credit note levels, and a host of other traces laid down over time.

Equiniti Riskfactor’s unique software utilises a series of complex algorithms to analyse sales ledger trends daily, providing detailed insights and historic comparisons that reconciliations and audits cannot do.

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