Advice ref : general and factoring

[Anonymous]

Hello to the forum :D

We will write and introduce ourselves in the introduction forum as asap, however we (myself and my partner; as in domestic as well as business!) have a pressing and worrying predicament brought on by sheer naivety and carelessness.(against my partners better judgemement :cry: )

In short, a business aquaintance is using a factoring company to finance a project. He has won the rights to supply goods to a household name.
He asked for my assistance by requesting my company act as a customer. I agreed to sign advice notes for goods received(not physically received), allowing him to raise invoices,hence allowing the factoring company to release funds to him. This was to buy him time and cash to sell the goods to his ACTUAL customer (a large household company who we believe were insisting on payment terms beyond those acceptable for a factoring company.In truth I am unsure.) To close the loop he was to buy the goods I received, back from me before I was liable for payment to the factoring company.

He was short of cash due to being victim of a customers` liquidation. It was the "big break he needed" It was a "one off" It was also to be "potential business for my company" etc etc etc

I didn`t ask many questions, believing the transaction to be straightforward if not a little audacious.

I am now getting cold feet. I am worried about the legality of my involvement. I am now worried as to how ethical my aquaintance is. I am now being chased for money by the factoring company AND my business aquaintance has not returned my calls for 2 days.

My question is what to do next. I hadn`t stopped to think about the legality and practicalities, having my own business to run. I have also received information, albeit hearsay, regarding my aquaintance , which frankly is worrying me.

THE QUESTION IS;

Does anybody know the consequences of pulling out ;which would surely have to mean being totally honest about our involvement? Or is there an alternative route open to me?

It is a worry as we have never needed or decided to knowingly resort to pushing any legal boundaries. Our company also has an excellent credit rating.

We thank you in advance for any comments you may have.

[Alpha]

Oh Dear

What you have done is basically committed fraud.

However your big problem is that if you have signed delivery notes thereby acknowledging the receipt of goods.

Not really sure of timescales involved but all you can really do now is
1) get payment off your 'friend' and pay to the factoring company or
2) write to your friend telling him that the 'goods' are unsuitable and have been returned and that you expect a credit note in full. Send a copy of the letter to the factoring company as the reason why you will not pay and they will be left to recourse the debt on your 'friends' company.

Obviously if your friend is a rogue he can quite rightly claim that there is no documentary proof that you have returned the goods.

Basically never get involved in any 'scheme' which is not legal or ethical!!

[Anonymous]

Alan,

thank you for taking the time to respond.

It is appears that "fraud" is difficult to define. However there is one recurring theme:

1. The crime of obtaining money by misleading people.

I have mislead (the factoring company) but I have not made , or indeed intended to make a financial gain.

I am now going to look into the consequences of going public on the matter.

Thanks again.

[Alpha]

Yes
unfortunately you did not intend to gain from defrauding the finance company but you did assisst your friend to do so :cry:

And as often been cited 'ignorance is no defence'

[BMS]

As Alan says this is definitely fraud.

Depending on the factoring company, you only hope is that they recourse the debt (stop chasing you,pass the debt back to you aquaintance, they will then deduct that amount from the next payment to your aquaintance).

The only problem then is that you have signed delivery notes and unless you can prove, via a credit not, that you no longer have liability for the goods you will still be liable in the eyes of the law.

The only way out then is to own up and admit the fraud.

Write to you aquaintance telling him you want a credit note or will inform the factoring company of the scam.

[Anonymous]

Thank you for both for your comments. It has been less lonelier.

I have been in contact with him. I have first hand evidence that he is now up and running to plan. He has apologised profusely, indicated surprise at my ignorance and I have been promised a credit note over the next few days.

I will put this down to experience and in future I will fully scrutinise my actions. :?

[BMS]

Glad that it has worked out.

My guess is that the factoring compnay will be asking him some serious questions over the credit note, but at least you are out of the loop.

[Ian J]

at least you are out of the loop.

I don't think that he is out of the loop at all as if the factoring company lose money over this fraud they will possibly put the matter in the hands of the police.

[BMS]

Ian

As the credit note reduces available draw down funds they will not lose money.

If they recourse the debt to the originator they will reduce the funds available for draw down and not lose money.

Still not an ideal situation by any means but at least liberate will not be liable to pay the invoive to the factoring company....maybe I should have phrased it differently.

[Ian J]

That is assuming that the credit note can just be easily "accomodated" within the normal weekly or monthly trading cycle of the factored client but I have my suspicions that the size of the credit note will not only stick out like a sore thumb but may not be quite so easy for the factor to recover their position with either.

In my many years of operational experience within a variety of factoring companies any unusual activity in areas that dilutes the factor's position will set the alarm bells ringing.

[BMS]

I agree Ian, and mentoned this in my second potst.

But the question will be asked of the factoring client.