A search on Google of 'invoice finance companies UK' gave over 500,000 results in under a second. More and more companies are offering invoice finance.
In addition to increasing competition among service providers, the rise in providers might increase the number of fraudsters trying to defraud these companies so invoice financing companies such as Cash for Invoices Limited, need to be vigilant.
Factoring and invoice discounting are well established forms of invoice finance, but there has been a rise in the number of companies offering a recent variation: single invoice finance.
What is single invoice finance?
As its name suggests, single invoice finance is the purchase of just one invoice from a seller, not its whole sales ledger. Cash for Invoices Limited is an example of a company that provides single invoice finance.
Cash for Invoices Limited will offer to buy an invoice off a seller - such as a SME or sole trader - for a discount (a fee) but will not commit the seller to sell any more and certainly not its entire sales ledger. Cash for Invoices Limited does not enter into a facility to regularly purchase invoices. Instead the seller sells only when it chooses, which might be never again.
Since there is no facility, Cash for Invoices Limited charges no arrangement fee and no ongoing fees, no annual facility review or renewal fee and no facility termination fee. All it charges is the discount for paying for the invoice ahead of its maturity date.
It takes no security either. It deducts up to 10% of the invoice amount upfront and pays this to the seller when the debtor pays on time and in full..
Cash for Invoices Limited's single invoice finance purchase service is therefore simple, quick, and transparent.
Cash for Invoices Limited's risk of buying a fraudulent invoice
Cash for Invoices Limited is exposed to the risk of purchasing a fake invoice sold by a fraudster. To mitigate this risk, Cash for Invoices Limited undertakes due diligence including Know Your Customer (KYC). It will also undertake anti-money-laundering checks in case the fraudsters are also money launderers.
According to Robert Bernfeld, "fake invoices and fake supporting documents are the most common forms of fraud." He also says a company that buys regularly from an established seller might skip key parts of its due diligence standards because of the goodwill and experience to-date it has with that seller and so it misses the fake invoice that the fraudster tries to sell that has a stated value of $8000 (for example) instead of the correct figure of $800.
Regarding single invoice finance, such as that provided by Cash for Invoices Limited, Bernfeld says: "In this instance, the company seeking invoice factoring is less likely to establish a lasting relationship with the factoring company and more likely to take the money and run. The con in spot factoring [a term used inter-changeably with single invoice finance] may work with a company setting up an entirely fictitious business with phony records and credit histories and even a staged verifier who provides made-up information to the factoring company to “verify for accuracy.” "
A hallmark of the fraudster is rushing the buyer for the funds it urgently needs, and they might also be reluctant to verify information requested, says Bernfeld. He warns the buying company: "due diligence, thorough verification, and corroboration are the keys for a factoring business to avoid becoming victims..[and] .taking short cuts should never take the place of verification.."
See the 30 Apr post for Arrow Trucking's massive invoice financing fraud.