An Insolvency practitioner for an accountancy firm has warned of a growing trend of ‘fresh air invoicing’.
Stephen Grant of Azets, an accountancy and advisory firm with offices in Poole and Blandford, announced rising instances of financially strained firms issuing invoices unrelated to any trading transaction.
The practice – coined ‘fresh air invoicing’ – deceives finance companies into advancing 70 per cent to 90 per cent of the falsely claimed invoice’s value on the assumption that goods have been dispatched or services delivered.
Mr Grant said: “Our message to businesses in London is to seek professional advice immediately and not to contemplate fresh air invoicing to get out of a financial hole.
“It is fraud.
“We are seeing a number of businesses under pressure and strain at the minute, which may cause them to risk fresh air invoicing, often to pay front-of-queue creditors.
“We are seeing it in companies that have been going along perfectly normally, running a well-established business, but cash gets a bit tight, so they pretend that they’ve dispatched £10,000 worth of goods, send in the invoice to the invoice discounting company, get in £8,000 and think they will repay the £10,000 when they really do send out the goods.
“But this can spiral, gets out of hand, and it is fraudulent.”
What is Fresh Air invoicing?
Fresh Air invoicing is a term used to describe fraudulent practices where businesses fabricate or inflate invoices in order to obtain financing from invoice discounting companies.
This type of fraud typically occurs when a business is facing financial difficulties and needs quick access to cash. By inflating or creating fake invoices, the company can receive funds from the invoice discounting company to cover their immediate expenses.
However, this practice is illegal and can lead to serious consequences for those involved. It not only damages the reputation of the company but also puts them at risk of legal action and potential bankruptcy.
Why is it considered fraud?
Fresh Air invoicing is considered fraud because it involves intentionally deceiving others for personal gain.
In this case, businesses are falsifying their financial records and misleading invoice discounting companies to obtain funds that they are not entitled to.
This can have a ripple effect on the market as it creates an unfair advantage for those who engage in this fraudulent activity.
How does it affect businesses?
Fresh Air invoicing not only has negative consequences for the fraudsters themselves, but it also affects other businesses and the economy as a whole.
The invoice discounting companies are at risk of losing significant amounts of money due to these false invoices, which can ultimately lead to financial losses or even bankruptcy.
This, in turn, impacts their ability to provide funding for legitimate businesses that truly need it.
Moreover, Fresh Air invoicing also damages the trust and credibility within the business community.
When word gets out about a company engaging in this type of fraud, it not only tarnishes their own reputation but also casts suspicion on other businesses that may be using invoice discounting legitimately.
The effects are far-reaching and can even impact the wider economy. As more businesses fall victim to this fraudulent practice, it can lead to a decrease in competition and innovation within industries, ultimately hindering economic growth.
What can be done to combat it?
To combat Fresh Air invoicing, there needs to be stricter regulations and better oversight in place for invoice discounting companies. This includes conducting thorough due diligence when onboarding new clients and implementing stronger verification processes for invoices.
In addition, businesses must also take responsibility for protecting themselves against this type of fraud. Conducting thorough background checks on potential clients will help Invoice Finance Companies protect themselves.
