Factoring Companies Guidebook
Teeming and Lading
Definition
This is where the Client is issuing replacement (normally fictitious) invoicing to raise funds to replace that reclaimed by us as we disapprove older invoices for age.
Concerns
Effectively this is fraudulent trading. The Client is deliberately raising fictitious invoices to ensure it has funds to meet creditors, or is knowingly using our facility to divert funds elsewhere, potentially for personal gain.
This situation does arise on occasion where the Client 'believes' that it has a short term problem and will correct the matter later. Unfortunately, this often almost inevitably leads to an increasing element of this spurious invoicing. Essentially, once the Client has received funds from us for the initial invoice, it then raises another to obtain funds to repay the original, assuming its own financial position has not improved. We are therefore paying ourselves. The escalation from one single invoice is evidenced from the following example:-
1. Invoice value £100
2. Discounter Advances £ 85
3. Invoice disapproved for age (£100)
4. Overpayment (£ 85)
5. Amount required to repay invoice £100
6. Invoice value required to raise £100 £117.65
7. Discounter Advances £100
8. Invoice disapproved for age (£117.65)
9. Amount required to repay invoice £117.65
Etc.
Identification
Strict credit control with a Full Factoring facility.
Review payment trends on particular customers.
Review reasons for non-payment.
Identify the drawer on cheques raised to clear outstanding invoices. With a confidential facility where the Client is responsible for banking funds into the Trust Account, copies of the 'customers' cheques should be retained where a third party remittance advice is not received.
No reliance should be placed on a customer listing detailed on the banking slips. While these may be accounts - fictitious or otherwise cleared with the receipts, settlement may be by one of the Client's own cheques.
Our systems both Factoring and Invoice Discounting, should identify where Client cheques clear Customer balances. This is more difficult where ID is concerned and it is only likely to be discovered through Audit where specific remittance tests are undertaken, or by Debtor Verification.
