In 2025, the most dangerous companies to underwrite don’t always look suspicious on the surface. In fact, they often appear too legitimate — with active Secretary of State (SOS) registrations, matching bank account details, and clean digital footprints.
But dig a little deeper, and you’ll find the seams:
→ Recently reactivated shelf corps with dormant pasts
→ Businesses created using forged EINs or fake incorporator details
→ Altered corporate filings masking true control or ownership
These tactics aren’t theoretical. They’re showing up in underwriting funnels across the industry. And because traditional Know Your Business (KYB) checks tend to focus on initial entity validation — not the intent behind the entity — fraud often slips through.
The cost? Millions in unpaid invoices, chargebacks, and legal headaches.
So how can factors protect their portfolios without creating onboarding friction or drowning their teams in manual review?
It starts with KYB that adapts to the lifecycle of fraud.
The evolution of factoring fraud
Historically, factoring firms relied on a mix of credit bureau data, SOS lookups, bank statements, and internal judgment to assess risk. But bad actors have become increasingly sophisticated — learning how to game each of those systems in ways that appear fully legitimate to surface-level checks.
Let’s look at a few common tactics:
- Dormant LLC reactivations: Fraudsters purchase or reactivate long-dormant entities with clean records, making them appear low-risk while hiding their true intentions.
- SOS officer manipulation: By altering officer names or filing amendments, fraud rings impersonate executives and obscure real ownership.
- Synthetic businesses: These are fabricated entities that blend real and fake data — such as a valid business registration paired with stolen personal information or synthetic identities.
- Fresh formations with forged documents: In some cases, new businesses are created entirely with falsified documents, including tax IDs and bank account details that pass basic checks.
These aren’t just anecdotal cases. In 2024, the FTC reported a 37% rise in business identity theft complaints — much of it tied to fake financing applications, altered corporate records, and manipulated KYB documentation.
And because factoring companies often operate on tight timelines with limited margins for delay, fraudsters exploit the need for speed. If KYB relies only on static data or traditional credit reports, there’s a real risk of missing dynamic threats.
Why traditional KYB falls short
Many KYB tools were built to validate that a business exists. But that’s no longer enough. Fraudsters know how to build “passable” business identities that check all the right boxes — even if they’re entirely fraudulent in practice.
For example, a reactivated shell company may have:
- A valid EIN
- Clean credit history (or none at all)
- An active SOS filing
- A seemingly legitimate website and email domain
But if that business was just reactivated last month, has suspicious officer changes, or shares an address with 20 other entities — those are risk signals that static checks miss.
And the rise of generative AI and low-cost business formation services has made it easier than ever to fabricate convincing business records. Fraud is no longer messy. It’s engineered to pass your review process.
Smarter KYB for the business lifecycle
Factoring firms need to go beyond one-time checks. Instead, KYB should reflect the ongoing evolution of a business — and flag anomalies as they arise.
That’s where Middesk’s KYB for Every Stage of a Business framework comes in.
We help factoring teams:
✅ Verify legitimacy in seconds using authoritative data from the IRS, Secretary of State offices, and other trusted sources — not just scraped or third-party data
✅ Spot deep risk signals that go beyond the credit file: reactivations, frequent officer or address changes, missing tax records, or abnormal filing patterns
✅ Monitor changes over time — like updates to corporate structure, sudden changes to industry codes, or regulatory status that may affect repayment risk
✅ Automate workflows to reduce manual reviews and get to faster, more confident yes/no decisions
A KYB approach built for factoring
Factoring moves fast — and so does fraud. You need to make quick decisions, but you can’t afford to sacrifice accuracy.
Middesk delivers the data and context you need to move quickly and confidently. With real-time access to the freshest entity records, audit-friendly trails, and nuanced risk indicators, your team can:
- Focus manual reviews where they matter
- Say yes to the right businesses faster
- Catch fraudulent actors before exposure grows
No more combing through filings line by line. No more flying blind with outdated credit reports. Just clarity, confidence, and control — built for how factoring works today.
Heading to IFA? Let’s connect.
We’ll be at Booth 10 in Palm Desert this week at the International Factoring Association's annual conference, sharing how today’s leading factoring firms are:
→ Automating KYB workflows
→ Reducing manual reviews
→ Spotting hidden fraud signals in real time
Want to chat 1:1 or get a live demo? Drop us a note — we’d love to connect.
