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A proof of funds is a document from a financial institution confirming an individual or entity has the funds to carry out a financial transaction. It is not a guarantee and can be used by scammers. Banks discourage issuing it unless the entity requesting it is legitimate.
A proof of funds is a document prepared by a financial institution stating that an individual or entity has the available funds to carry out a particular financial transaction. Such a document is sometimes prepared at the request of a seller who is considering an offer from a buyer. The seller requests proof from the buyer, who in turn authorizes their bank or other institution to provide data confirming the ability to honor the terms of the transaction.
It is important to note that a proof of funds does not constitute a guarantee from the financial institution issuing the document. At no point does the institution act as guarantor that it will honor the debt obligation if the buyer chooses to default in the future. The proof is simply that as of the application date, the buyer has the resources to service the debt, and those resources are readily available.
While proof of funds is often required for legitimate reasons, the document has also become a tool in the hands of scam artists. Requesting and obtaining proof is useful for a scam artist, as the document states that the intended victim possesses substantial wealth, or at least enough to benefit the criminal should the scam be successful. This allows the scammer to quickly move away from potential victims who lack the desired financial resources and focus their attention on others who do have significant financial resources. This helps to ensure a higher return for the effort put into the scam operation.
Many banks and other financial institutions tend to discourage their customers from authorizing the issuance of proof of funds unless the identity and reputation of the entity requesting the document can be firmly established. Legitimate businesses that require these types of documents can usually be established through the use of information that is freely available to the public. Even banks and similar institutions can often access data on legitimate business enterprises, including entrepreneurs, with relatively little effort. In the event that the seller’s background investigation yields information that causes any degree of alarm, proof of funds should not be permitted and the proposed deal should be rejected immediately. Depending on the information that is discovered during the investigation, it may be appropriate to alert local law enforcement authorities.
Smart Asset.
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