How to spot commercial fraud

Commercial Fraud is on the rise and the annual cost to the UK economy is estimated to be £190bn per annum (according to the National Crime Agency). Criminals are very good at fooling even the most seasoned credit manager and fraud is not restricted to new customers: existing customers may be taken over by fraudsters or turn fraudulent themselves.

The most common type of commercial fraud is general defrauding of suppliers by fake companies masquerading as legitimate enterprises that appear to be financially strong enough to warrant credit.

Who’re behind these commercial fraud enterprises?

• Organised Crime – relatively low risk for high reward. Very sophisticated operations with meticulous planning, but requiring very little investment – typically large scale
• Unsophisticated Crime – usually individually led and opportunistic
• Legitimate companies which, due to financial pressure, turn illegitimate

Each point in isolation does not necessarily mean that the customer is fraudulent, but when several flags below are observed together, suspicions should be raised.

What to look out for with new customers

Onboarding process to prevent commercial fraud

Don’t make it too easy for new customers to obtain a credit account. Ask them to fill out an account application form and check their credit status with a credit reference agency.

Phone numbers

If your new customer has only given you a mobile number, ask if they have a landline and check that it works.

Registered office address

Is this a PO Box or a virtual office? This can be a red flag as It’s easy for fraudsters to set up a PO Box/virtual office and quickly move on.

Delivery and collection

Check the delivery address using Google Maps (street view) to see their premises.

If the buyer insists on collection, check to ensure they are not using unmarked vehicles.

Have they changed ownership?

This could be very innocent, but it’s worth checking out the background of the new owner and making sure you’re still dealing with the company you think you are.

Do they have a website?

If they do, does it look professional? Can you see when it was created? Does it have functionality or is it a one page site? Fraudsters will often go to the trouble of creating a website, but while it may look professional, it will be very basic and has limited/no functionality. Beware of recently created domains. www.whois.com/whois is a free service where you can check the creation dates of email/web domains to aid you in clarifying the authenticity of the business. Is the email address consistent with the web address or is it Hotmail or similar?

Is the new prospect/customer a reactivated ‘Dormant Company’?

Fraudsters may take over a dormant company and use previous goodwill to fool suppliers.

Does the business activity match the goods/services you’re being asked to supply?

Check the SIC code for the business to ensure it fits with what you’re being asked to supply.

Are they too willing to accept your price without negotiation?

This may be normal for your industry, but for many it’s not. If a prospective customer is too willing to accept your price without negotiation, this could be a red flag.

Have a number of directors resigned in a short space of time?

Multiple credit enquires can indicate that a business is overtrading. This is usually preceded by a change in management/ownership.

Have their purchase patterns changed?

Fraudsters will often start a relationship by placing small orders and paying for them to terms, then placing a large order which won’t be paid.

Has there recently been a change in business activity?

If the business has recently changed SIC code to something completely unrelated, this could be a red flag.

Are they chasing for delivery?

Persistent contact from a new customer about when they can expect their order may be a sign that the buyer is not who they say they are and they’re keen to secure receipt of the goods so that they can sell them on quickly without paying you.