A major bank had concerns about the validity of a number of invoices that they had funded in respect to an invoice financing facility they had provided to a fashion accessory supplier. The bank engaged a leading firm of management consultants to review their facility in general and in particular to assess the collectability of the invoices that they had funded. The consultants turned to WTC to advise them and to manage the assignment on a day to day basis.
- A full debtor verification exercise was undertaken by WTC including:
- Meeting with the directors (with the bank attending) and Financial Controller to review the debtors ledger and to discuss the invoice finance facility.
- Debtor verification letters sent to all debtors to confirm balances outstanding.
- Telephone calls made to the “top twenty” debtors to verbally verify balances, establish payment history and to confirm the bank accounts into which monies were paid.
Key Breaches of the Facility Identified
- “Fresh Air” Invoices –invoices financed by the bank which were not sent to customers with no goods ever being supplied.
- Mis-Banking – directing customers to pay financed invoices into a related entities bank account and not the banks nominated bank account.
- Invoicing in advance – requesting the bank to finance invoices before goods being delivered.
- Delays in raising credit notes to ensure “headroom” in the facility.
In order to protect the bank’s position a number of initiatives were introduced by WTC including:
- Implementing a collection strategy including the management of the major debtors to ensure payment to terms into the bank’s nominated bank account.
- A weekly audit of all invoices and credit notes raised during the preceding week, together with supporting documentation, to ensure validity. Although the facility had been terminated the bank continued to hold security over unfinanced invoices and therefore needed to collect them to ensure that they were paid out in full.
- A weekly meeting with the Company Director and Financial Controller to discuss the invoice finance facility and to create a presence on the company’s premises.
- Weekly reporting to the bank and other stakeholders.
Tighter control over invoicing and collections ensured that the bank was paid out in full in respect to its invoice finance facility.