A proof of funds (POF) is a document or bank statement proving that a person has the financial ability to perform a transaction. For instance, a POF is generally obligatory for people seeking mortgages as bankers are often more willing to issue them to those who have the sufficient funds to pay their mortgages off as opposed to those who cannot do so. Thus, a POF letter provides the selling or lending party with confidence that the funds are obtainable and legitimate.
A request for a prepaid Proof of Funds letter, or an opportunity to invest in, lease or purchase a POF letter should send the parties to turn to their known legitimate bankers for assistance as there are many scams using this terminology.
Proof of Funds in Practice
A POF is commonly used when commencing commercial transactions between parties who do not know each other. The purchaser’s bank produces evidence in a standard format that their client is good for a transaction up to the value of xx, based on yy item etc. Usually, such letters have to be produced/verified/confirmed by a class A international bank, as local banks do not have the status required by counter-party banks in other countries.
Or in the retail market, when funding large-scale investments such as buying a house or property as real-estate agents tend to demand evidence that the buyer has such affordability. One way in which a person can acquire a POF, is by requesting the bank to confirm and approve the amount of cash that the person has on hand. The bank should also approve of the availability and legality of the funds to be used as a transaction before the funds can be transferred. If interested in buying property, The property beneficiary should be convinced of the fact that the buyer has such affordability to buy such property.  However, since every POF document has an expiry date, at which point the document becomes of no use to the seller, it is essential to keep it up to date especially as the buyer’s POF submission and the seller’s process of approval can, in some cases, consume a substantial amount of time, taking weeks and even months to finish the process.
Leased Proof of Funds
A POF can in some cases be borrowed or leased, which is where a client pays a fee for cash to be deposited into their personal or business bank account, but the cash is limited by the bank as the client is not permitted to withdraw it or complete transactions with it. By keeping the funds unable to be used, it safeguards the asset holder and makes them ensure that the cash can solely be used to complete POF transactions based on what the loan agreement dictates.
Standby Letter of Credit
A Standby Letter of Credit (SLOC) is a letter issued by a bank guaranteeing payment to a beneficiary in case the buyer or customer fails to pay the seller at a given time period. SLOCs are usually used when doing international trading between different countries to avoid conflict as they are a way of building credibility and trust in assuring unknown sellers with confidence that they will receive their payment. Another way of ensuring that beneficiaries receive their payment is through collateral, which is where lenders demand assets and properties of certain value (depending on the value of the loan from the loaner) from loaners as a form of security before handing out loans to them.
Blocked Proof of Funds Letter
A blocked POF letter is a letter from a financial institution or government that approves the halting or reserving of a person’s funds on behalf of them. Governments can reserve a country’s funds by restricting the maximum amount of funds that is allowed to be spent at a certain period of time in order to control the country’s cash flow. Other circumstances where funds may need to be blocked may be due to political or emergency reasons such as during war or following the death of an account holder.
- ^“Proof Of Funds – POF”. Investopedia. Retrieved October 10, 2014.
- ^“Why Sellers Demand Proof of Funds From a Buyer”. About Home. Elizabeth Weintraub, Home Buying/Selling Expert. Retrieved 16 October 2014.
- ^ Jump up to:ab “Proof of Funds for a Short Sale Offer”. SFGate. K.C. Hernandez, Demand Media. Retrieved October 12, 2014.
- ^ Jump up to:ab “How to Show Proof of Funds to Buy a House with Cash”. SFGate. Solomon Poretsky, Demand Media. Retrieved October 12, 2014.
- ^“How to Write a Proof of Funds Letter”. wikiHow. Retrieved October 13, 2014.
- ^“Leasing Funds for a Proof of Funds Deal”. Balboa Trade. Retrieved October 16, 2014.
- ^“Standby Letter of Credit”. About Money. Justin Pritchard, Banking/Loans Expert. Retrieved 17 October 2014.
- ^“DEFINITION OF ‘STANDBY LETTER OF CREDIT – SLOC'”. Investopedia. Retrieved 18 October 2014.
- ^“Collateral Basics”. About Money. Justin Pritchard, Banking/Loans Expert. Retrieved 18 October 2014.
- ^“Types of Proof of Funds Letter”. Balboa Trade. Retrieved 18 October 2014.
- ^“Blocked Funds”. The Free Dictionary. Farlex Financial Dictionary. Retrieved 18 October 2014.
- ^“Blocked Funds (Letter/Certificate/Notice)”. FraudAid. The Dictionary of Financial Scam Terms. Retrieved 18 October 2014.