Combating fraud in factoring

Getting into factoring is easy. Staying profitable is getting much harder. One of the biggest threats to factoring profits is fraud. Anecdotal evidence suggests that fraud within the factoring industry is increasing at a significant rate, and because factors work on high volumes and small margins, the impact of fraud can be devastating. What makes matters worse is that fraudsters are becoming increasingly sophisticated and therefore more difficult to stop. In an industry where annual volumes in Europe exceed 500bn euros, the sums involved in fraud are getting very large and the situation for factors, extremely serious.

Fraud is usually as a result of fictitious or 'fresh air' invoices being raised and sold to factors. However, increasingly, fraudsters are using information technology to perpetrate and control more complex frauds, particularly where foreign jurisdictions are involved. One such scam, involving the non-payment of large amounts of VAT, is known as 'carousel fraud'. Here, innocent traders and funders can also get caught up.