Factoring Companies Guidebook
Trading between Clients
Definition
This is where the Client trades with another Client i.e. sells on to another Client who sells on again, rather than sells to and purchases from the same Client.
Concerns
Effectively we are advancing monies against sales of a particular item twice. In the event of a dispute by the ultimate debtor, the amount disputed could be passed back from the second Client to the first Client, resulting in the amount being disputed twice on us. Where Client's are aware of each other this also increases the potential for collusion and fraud.
Identification
Due to the number of Clients serviced by us, our personnel could not reasonably be expected to have the knowledge of all Clients' and it may therefore be a matter of luck if common debtors are identified. Searches can be made on our system for other Client's and where this is suspected of happening, we should be wary.
Treatment
Trading between Clients's provides the perfect opportunity to verify the accuracy of both Client's records (sale and purchase) and the operation of their invoicing.
Reserves should be considered if the amount is large or even excluding the debt from funding.
