BACK

Your Business Credit

Mystery withdrawals could be your lender, not a thief

Summary

If money is disappearing from your business account, it could be fraud, but it may also be a lender you’ve given permission to take a portion of your receivables each month

The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

QuestionDear Your Business Credit,
My daughter borrowed from a funding company for payroll. She had never been in trouble before with expenses, but seemed to have no money each month. Money was disappearing from her account. My daughter’s CPA is trying to find why.

She told this to the funding company. She now can’t pay the lender the full amount. She had an agreement for less approved but they say it somehow went to the risk department at a legal firm. They won’t call back and I leave a massive number of messages. When I am lucky to get them on the phone they are “working on preparing to make payment arrangements.”

We were never told any of this was about to happen. They froze our credit card payments from clients. We needed this for payroll. We are about to have 30-plus angry employees. Why didn’t they just call and say, “Let’s make an arrangement?” I’m sure they will go after our bank account next but why??? This will put my daughter in huge trouble with the IRS and State Comptroller. They want her out of business? She does not AT ALL want to close and go bankrupt after 20 years in business. — Patricia

AnswerDear Patricia,
Wow! I can understand why you and your daughter are worried. I do think there’s a solution, but you will need help from a pro.

Your daughter’s first major problem is not knowing why money is disappearing from what appears to be her business bank account. Ordinarily, it should not be hard to figure out why money is being deducted from a bank account, because the bank explains where an electronic debit is going on the bank statement. I am puzzled as to why your daughter cannot determine who is deducting the money.

If there are unauthorized transactions going on, she needs to report this to the bank immediately, because it is possible someone has stolen her debit card information. She will ultimately have to swallow the losses if she does not report them. Another possibility is embezzlement. If you suspect that is the case and your daughter’s accountant can’t figure out how it is happening, you may need a forensic accountant to determine this. Embezzlers can be pretty clever in how they steal from businesses.

Reading between the lines, I suspect that what happened is your daughter may have gotten money advanced by an alternative finance company, or receivables financer. These companies advance money against a borrower’s incoming credit card or PayPal receivables. The financing companies then automatically deduct a certain percentage of the merchant’s daily, weekly or monthly receivables to get repaid. It’s a similar concept to the centuries-old practice of factoring, only the newer loans are not tied to particular invoices.

Sometimes, the fees these alternative lenders charge are very high if you convert them to an annual percentage rate. In some cases, it is hard for a merchant to understand how much they actually must repay, because the financing companies explain it in a very confusing way.

Once such financing companies advance the money, they begin deducting repayments from the business’s bank account or PayPal account. They do this regardless of how healthy — or unhealthy — the merchant’s cash flow is at the moment. That takes away the merchant’s option of holding onto the cash for a few more days in order to make payroll or pay another bill. If the finance company is charging the merchant very high fees, this practice can starve a business of cash and, in a worst case scenario, cause a business to fail. For more about how this happens, please read “New business financing sources to try when the bank says no.”

Since your daughter now can’t make payroll and does not seem to have other money available to repay the financing, she is in a crisis. I would strongly advise she get legal help from an attorney in your state who specializes in debt and bankruptcy. It sounds like the outside financing company could be willing to make payment arrangements with you, so perhaps it needs more of a push in that direction by someone experienced in negotiating in this situation.

You have one factor in your favor: The financing company will not benefit if your daughter’s business goes under, because that will greatly reduce the chances it will be paid back. A good attorney will help you get your daughter back in control of this situation.

Once she gets that help, I’d strongly suggest she speak with her accountant about how to improve cash flow at the business. A business should not have to rely on outside funding to make payroll, so she may need to find ways to increase revenue or get customers to pay her more quickly. Good luck. I am rooting for her!

See related:Remorseful fraudster must find way to repay business partner, Creative financing for small businesses, 7 tips for using online alternative business lenders

 

What’s up next?

In Your Business Credit

EMV terminal recommendations for small business

With the EMV liability shift looming, merchants are looking to upgrade their credit card readers. These recommendations and tips can help you choose the right one

Published: August 31, 2015

See more stories
Credit Card Rate Report Updated: June 19th, 2019
Business
15.61%
Airline
17.54%
Cash Back
17.68%
Reward
17.57%
Student
17.79%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.