Factoring has now become commonplace in the world of finance. This practice consists in selling your invoices to a financial institution which will then take care of collecting unpaid customers. This technique is certainly practical but it also leads to a large number of frauds. What is factoring fraud? What are the consequences of factoring fraud? How can we protect ourselves from such an act? We take stock with you in this article!
Factoring, also known as factoring, is a process by which a company Transfer your invoices to a company, called factor. The latter immediately pays the company and then takes care of the collection from the customers concerned.
💡 Did you know?
Most factoring companies are banks because the risk taken in advance of invoices would be too great for a traditional business. For example, you will find:
- The Postal Bank
- BPCE Factor
- BNP Paribas Factor
- Crédit Mutuel Factoring
- Delubac
- Eurofactor
- Factofrance
- Natixis
- Société Générale Factoring
This method has an obvious advantage in the face of debt payment deadlines, which can extend up to 60 days after the invoice is issued.
The terms of the factoring contract determine the scope of application as well as the commissions charged by the factoring company:
👀 Good to know:
It is important to note that the factoring company generally withholds a guarantee. It recovers part of the sum for which the customer is liable and this percentage varies depending on the factoring company.
Let's take an example to make it easier to understand!
Company A provides a service for company B. Company B takes some time to pay company A for the service provided. In order to be paid more quickly and to maintain good working capital, company A decides to go through a factoring company. Company A then provides its invoices to the factoring company, which then pays for the service provided by withholding a small percentage.
Subsequently, Company B will directly compensate the factoring company.
Factoring fraud has become easy today, especially with the use of photo editing software. We explain to you why!
During factoring fraud, a third party company sends false invoices to a factoring company in order to collect undue money.
The fraudulent company alters or creates false invoices, often using photo editing software, in order to collect money that it should not receive.
Let's go back to the previous example to make this explanation more concrete! Let's imagine that the collaboration between company A, which decided to go through a factoring company, and company B comes to an end.
In a completely dishonest way, Company A decides to continue sending invoices to the factoring company in order to receive money that it should not have received. The invoices are obviously falsified since the collaboration between company A and B has come to an end. The factoring company therefore continues to send money to company A.
However, when the factoring company asks company B to pay the advanced bill, company B does not understand since the collaboration with company A has stopped. The factoring company is therefore impacted, it has reimbursed expenses that should not be reimbursed and company B therefore does not have to pay the bill.
The most important problem in this type of situation is that the fraudulent company, in this case company A, is often insolvent and is therefore not in a position to repay the factoring company.
For a more concrete example of factoring fraud, you can find our dedicated article: The consequences of factoring fraud: the case of URICA
Also note that the factoring company does not have the right to insure against fraud. It is therefore necessary for it to put in place means to fight fraud. We'll tell you more in the rest of this article.
In the fight against factoring fraud, it is crucial not to Never make payments in an emergency situation. Indeed, scammers rely on just that. For example, it is recommended to carry out a double check by contacting the parties concerned by other means.
La segregation of duties also helps to reduce the risk of fraud. By involving several collaborators in the verification process, you drastically reduce the risk of fraud.
Fraud can often be detected by manual verification. On the other hand, for factoring companies, it is also essential to use an anti-fraud solution.
At Finovox, we have implemented a solution for the detection of false documents in two forms:
The aim of this two-part solution? Meet your needs in the best possible way. Indeed, these solutions were designed to be used in a complementary manner. This guarantees a fast and efficient deployment and gives you access to all the functionalities of the Finovox tool if you wish!
Interested in the solution?
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