The paper ball or collusion paper is a fraudulent practice carried out mainly by individuals or free companies that discount commercial bills to be able to finance themselves in an agile way but without being supported by a valid or real economic activity.
This is the creation of fictitious or unsupported discount letters by companies with the aim of obtaining financing from financial or banking entities. Not being supported means that they are not linked to commercial activity and actual sales of goods and services.
The most common payment instruments in this type of illicit practices among companies are the so-called commercial bills , among which the use of promissory notes or bills of exchange stand out in normal practice .
The paper ball is broadly understood as an illegal and fraud operation, which however has fallen into disuse in recent years due to the advancement of technology and new financial and banking practices. It is also known as ball paper in the field of economics.
Motivation for the use of ball paper
The discount line created must be returned within a certain period until its expiration. That is, the drawer who undertakes this action takes air or margin to be able to get funds for the return of that discounted amount at the beginning.
Paper ball is often primarily a resource for smaller companies to obtain financing, especially in more desperate or near bankruptcy situations.
Example of using collusion paper
A shoe sales company urgently needs to obtain funds, so it asks another company that provides it with material to provide any kind of commercial paper for an amount of money so that the shoe company can obtain said amount justifying the existence of a purchase of material from the other company that does not really have to be done at that time (by way of favor it is usually given and by mutual agreement).
In this way, the injured party would be the third party, in the figure of the lender (almost always a credit institution), which lends said amount without solid certainty or security regarding the return of that money plus interest. In this sense, there is a high risk of default.