Detecting Fraud: Basic Checks You Should Do Before Extending Business Credit

With the recent rise in bankruptcies, it is more important than ever before to have a handle on business to business (B2B) risk management. More and more fraudulent companies are emerging, as business lines are being blurred from start-up manufacturers operating from a garage, e-commerce “e-tailers” businesses that may or may not be legitimate. Because of this, it’s tough for credit managers and risk management professionals to tell the good companies from the “bad” ones.

So what’s a credit professional to do? Here are several activities you can do before you decide to extend B2B credit.

  • Validate their address. With Google maps, you can tell more about the location of a business than ever before. Does their address come up on Google maps? Does the satellite view (photo) show that they’re a residence or a business? Are they located in an area where it would be impossible to do business (i.e., a forest)? Answering these location questions ahead of time could alert you to red flags of fraud before you take them on as a client.
  • Make them fill out a credit application and check and confirm their credit references. When you call their list of references, are they companies who’ve done businesses with them recently? Are the phone numbers of their references valid? Are the numbers for all companies mobile phone numbers, leading to the conclusion that these are individual numbers not businesses? Are the references related to the potential client? If any of this data they provide sounds fishy, it could be another red flag.
  • Visit the customer’s website. There are many red flags that can be gained by visiting the site, including poor design, phone numbers not matching those given in the references, broken image links and other items that can cause you to question the validity of the business.
  • Utilize your Industry Credit Groups. Utilize the knowledge of your fellow industry credit managers by bringing up any suspicious companies during your Industry Credit Group meetings. As we see repeatedly in Credit Group meetings, fraudulent companies tend to go to multiple companies in a particular industry until they get what they need. Additionally, anscers RFIs and alerts can help you on an as-needed basis, and CMA members get unlimited access to these alerts and RFIs.
  • Use credit reports and decisioning data to help. CMA provides access to reports from the major reporting agencies and also offers the NACM National Trade Credit Report, which aggregates information submitted to all of the NACM affiliates that is not typically provided to the major credit reporting bureaus. And better yet, CMA members who contribute their A/R information receive 25 free NACM reports per year.
  • If you’re in the construction industry, consider using THE Construction Credit Report, providing access to public record data; title search (with live links to actual documents) on mechanics lien filing/release; notice of completion; notice of Lis Pendens (action/discharge); tax lien or judgment; active trade lines; credit analysis and score; collection agency and factoring company activities; and links to state Registrars Of Contractors. For more information on this unique report, click here.

If you consider doing these tasks before deciding to extend credit, you’ll help eliminate obvious fraud from occurring, protecting your company’s most valuable resource, its accounts receivable.

What processes does your company have in place to help protect from fraud? We’d love to get your input!

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