The use of audit trails and verification by invoice finance companies

23rd June 2021

This article looks at the use of audit trails and verification by invoice finance companies. Verification is when a funder contacts a few of the invoice finance user’s customers to ask for confirmation that the work relating to assigned invoices has been completed.  The invoice finance user is referred to as the client.

The verification can be done verbally however when the client has a confidential facility i.e. the customers do not know of the funder’s involvement, the funder will ask for audit trails for a sample of the sales invoices against which funding is required.  The documents required are typically the purchase order, invoice and signed proof of delivery or satisfaction note (where a service has been provided).

Audit trails should be seen as important to a business as it is to the funder.  It is key that a business has obtained sign off for goods delivered or provision of a service to mitigate the risk of a customer later challenging that they owe the money.  Without this paperwork, a business would find it difficult to pursue legal action against a non-paying customer.

We were approached by an Optimise client who had concerns over the amount of audit trails they were being asked to provide by their funder to access cash against their sales invoices.  They found it time consuming, costly and they felt untrusted.

Acting on behalf of this business, Richard Turvey contacted the funder to discuss the client’s concerns. The funder explained that verification was necessary for risk management and allowed them to demonstrate they are compliant to the need of their stakeholders e.g. parent company.

Richard understood this however, using his invoice finance experience, was able to highlight to the funder the strengths of the client i.e. strong management and profitable.  In addition, the monthly Optimise report we produce as a part of our service highlighted that the customers generally pay in full and on time.  This Optimise report was shared and the funder agreed to reduce the need for verification significantly.

As is demonstrated here, a funder’s requirement for verification can delay the availability of cash to a business.  It can also put strain on the relationship between the funder and its client although it is equally important that the client understands that the funder has needs too – in this case, the request for audit trials was demonstrating to their stakeholders that they are responsible lenders.  The key is understanding each other’s requirements and compromise.

Users of invoice finance need to be aware that whilst some funders are more cautious in this area, others will look at them on an individual basis and agree to set levels of verification appropriate to each business.

Should you or any users of invoice finance you know be having issues with demands by funders for audit trials which feels onerous, please get in touch.  Your funder will not want you to feel that way and as demonstrated here, we can use our invoice finance knowledge and experience to create a solution which suits all parties.

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