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Credits in a business statement look large, but some of the money is the borrower's own funds going out and coming back.
Pair debits and credits of similar amount with the same or linked party within a few days, and check whether a real sale or refund explains each pair.
Twelve months of statements, counterparty names from narrations, and the applicant's list of related parties.
Adjusted turnover that removes round-tripped credits, with a list of loops and the evidence requested.
A circular transaction is money that leaves an account and comes back, either directly or through linked parties, with no real sale or service behind it. It is also called round-tripping. It makes turnover or balances look bigger without adding any cash to the business.
What patterns show round-tripping in a statement?
Look for three patterns:
- Similar debit and credit within days. ₹5,00,000 goes out and ₹4,98,000 comes back three days later.
- Same party both ways. The narration shows the same company, person or UPI ID on the debit and the credit.
- Own-account loops. Money moves to another account held by the borrower or a family member, then returns as a “customer receipt”.
Loops can also pass through two or three parties: A pays B, B pays C, C pays A. A single statement shows only the start and end, which is why counterparty analysis across names matters.
Which lookalikes are genuine?
| Lookalike | Why it looks circular | How to check |
|---|---|---|
| Refund | Money goes to a supplier and some comes back | Refund note or cancelled order; usually a smaller part of the payment |
| Advance returned | Advance paid, then returned when the deal falls through | Written order and cancellation; happens once, not every month |
| Supplier credit note | Supplier pays back for damaged goods | Credit note number matching an invoice |
| Group company settlement | Payments between related firms | Invoices for real goods or services, and amounts that differ |
The key difference: a genuine lookalike happens occasionally and has paperwork. A loop repeats, the amounts barely change and the paperwork is thin or missing.
Worked example: four loops in a quarter
A trading firm’s statement for April to June shows this pattern four times:
| Date | Entry | Amount |
|---|---|---|
| 2 April | Debit, RTGS to Party A | ₹5,00,000 |
| 4 April | Credit, RTGS from Party A | ₹4,98,000 |
The same pair repeats in May and twice in June. Total credits from Party A are 4 × ₹4,98,000 = ₹19,92,000. Total debits to Party A are 4 × ₹5,00,000 = ₹20,00,000.
Suppose the firm’s total credits for the quarter are ₹40,00,000. About half of them (₹19,92,000 ÷ ₹40,00,000 = 49.8%) are round-tripped money. Real credits are ₹40,00,000 − ₹19,92,000 = ₹20,08,000. The firm has actually lost ₹8,000 net to Party A (₹20,00,000 − ₹19,92,000). A lender that counted all credits as turnover would roughly double the firm’s true scale.
Why does it matter for a loan?
Many lenders size a loan using banking turnover, the total of genuine business credits. If half of that turnover is circular, the loan could be about twice what the business can carry. Removing the loops before working out turnover is the fix.
What to read next
Finding loops across thousands of entries is the job of counterparty spread analysis, so read that next. Also see suspicious counterparty patterns and what window dressing is.
A bank statement analyzer groups entries by counterparty so loops are easy to see. TransactIQ, a managed service on Terra Insight’s AWS Mumbai infrastructure, includes fraud and anomaly signals among its 40+ engineered credit signals.