Fraud is estimated to cost the global economy £3.89 trillion a year, and over £193 billion a year in the UK. In the last 10 years fraud losses have increased by 56%. Furthermore, with only a fraction of fraud cases being reported, the true figures could be much higher.
The pandemic has increased the risk of businesses becoming a victim of fraud and cybercrime due to the increased pressure that business owners and employers find themselves under. It may be tempting to cut corners to take on new suppliers, customers or agents, supervision of staff has decreased and there are capacity issues as a result of staff working remotely, furlough and sickness.
In terms of trade credit, the most common type of fraud is Short Firm. This is where suppliers are defrauded through buyer impersonation or fraudulent orders.
Below we offer our top tips for our clients to avoid or spot this form of fraud.
- Do Your Due Diligence
In the current economic climate, it can be tempting to cut corners to take on new customers. Fraudsters are taking advantage of staff working remotely to try to circumnavigate typical onboarding processes.
Ensure that your business has a due diligence/onboarding process for new customers. Coface highlighted the importance of ‘Knowing Your Customer’ in their recent webinar, “Navigating Through a Turbulent 2020 & Looking Ahead to 2021”. As a business, you should be asking for full contact details for the business, including websites, trading and registered addresses and trading references.
- Verify Company Details
Check the company details that have been provided in the onboarding process. You can verify website registration details at www.whois-search.com. Google street is also a great tool to check registered and trading addresses. Be wary of virtual offices, serviced offices, PO Boxes and residential addresses.
Take note of how the customer made contact with you. Caution should be taken with new customers contacting from non-company emails addresses or mobiles or a change in the usual contact method for an existing contact. If it is a new customer, try to verify the credentials of the person making contact. If the contact person for an existing client has changed, you can check with someone else at the company. You should be able to verify this information based on what was provided during onboarding.
- Carry Out Financial Checks
Confirm through Companies House or your dedicated contact at FinCred if the company has filed their accounts. In addition, accounts which appear to be too good to be true, especially first year accounts, should be regarded with caution. Any recent or regular changes to the company information such as dormant status to trading, registered and trading address alterations or changes to directors should raise red flags. If you have doubts, you can contact the accountants/auditors named on the accounts for verification.
- Does the Order Make Sense?
Keep an eye out for poor grammar or spelling both in correspondence and on the purchase order. If there is a short amount of time between first initial contact, order and requested delivery, or the customer is aggressive and overly demanding, then you should consider why the customer is in a hurry.
One or several low value orders which may be paid for, followed by a much larger order is often a pattern used by fraudsters to build up trust. Based on the financial checks you have carried out, does the order value make sense in relation to the size and turnover of the company making the order? Does the industry sector of the customer match the goods/service provided by your company? Be wary of customers who wish to collect goods from your premises particularly if they are in unmarked vehicles. Ensure that bank details match the information provided at the credit application stage and be wary of last-minute changes to bank details, order values or delivery address.
The credit insurers offer extensive advice and support to protect your business against fraud. You can find this information at the links below: