Proof of funds is a document from a financial institution confirming that an individual or business entity has the funds to complete a transaction. It is not a guarantee and can be used by scammers. Banks discourage issuing the document unless the requester’s identity is established.
A proof of funds is a document prepared by a financial institution that affirms that an individual or business entity has the funds available to complete a given financial transaction. Such a document is sometimes prepared at the request of a seller considering an offer from a buyer. The seller requests proof through the buyer, who in turn authorizes his bank or other institution to provide data confirming the ability to meet the terms of the transaction.
It is important to note that proof of funds is not a guarantee from the financial institution issuing the document. At no time does the institution function as a guarantor that will honor the debt obligation if the buyer decides to default at some point in the future. The test is simply to state that as of the application date, the buyer has the resources to pay the debt, and those resources are readily available.
While proof of funds is often requested for legitimate reasons, the document has also become a tool in the hands of scammers. Requesting and obtaining proof is useful to a scammer, as the document claims that the intended victim possesses considerable 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 do not have the desired financial resources, and focus their attention on others who do have significant financial resources. Doing so helps 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 a proof of funds unless the identity and reputation of the entity requesting the document can be firmly established. Legitimate businesses that request this type of document can usually establish themselves by using information that is freely available to the general public. Banks and similar institutions can also often access data on legitimate business enterprises, including entrepreneurs, with relatively little effort. In the event that the investigation of the seller’s background yields any information that causes any degree of alarm, the proof of funds should not be authorized and the proposed business agreement should be immediately rejected. Depending on the information that is discovered as part of the investigation, it may be appropriate to alert local law enforcement authorities.
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