Is A New Potential Customer Trying To Defraud You?
As we’ve mentioned in previous blog posts, credit fraud is a fairly significant problem for many businesses across the country. A customer will place a large order with no intent to pay for it, and unless your credit department is diligent in their credit analysis of potential customers, you may be left with a large unpaid invoice that can seriously damage your business’s financial health. Here are some indicators that a new customer may be attempting to defraud your company:
- After placing a relatively small first order and paying for it on time, a new customer may then place a very large order. This should certainly raise a red flag: the customer’s first order, and timely payment, may have been a ploy to gain your company’s trust in order to place the 2nd, larger order.
- When a customer places an order, do they do so over the phone? This may be an attempt to avoid leaving a paper-trail of the order. Always require physical order forms when accepting orders from customers, especially new ones.
- Is the company using a name that is similar to a well-known, large company? Always be weary when dealing with these types of businesses; they may have chosen a similar name hoping you won’t notice the difference or that you’ll assume they’re affiliated with the respected company.
- If you find information on a new customer’s credit application that can’t be confirmed, this should also raise a red flag. Research further into the information and note any discrepancies, and of course, always carefully review any new customer’s credit application before extending any credit to them.
- Are the customer’s orders infrequent or irregular? This can also be a problem with existing customers – a new owner may have purchased your customer’s business to take advantage of their established credit history in order to avoid detection when attempting to defraud you.
- If your new customer is from out-of-state, this can also be an indicator of attempted fraud. While not all companies ordering out-of-state are attempting to defraud their suppliers, it is very rare for a fraudulent company to place orders in the state they’re established in.
If your company has already been affected by fraud, you should strongly consider turning the account over to a collection agency. They’ve got the resources, know-how and experience to track down the fraudulent business’s owner and have a much greater chance of getting you the money owed to your business than your in-house credit department. You may also have to pursue the unpaid bill in court, which a debt collector can help you organize as well.
About The Author:
Dean Kaplan is Principal at The Kaplan Group. Dean's expertise is widely recognized in the debt collection industry. His advice has been published in a number of industry newsletters such as Credit Today and InsideARM and he is a frequent speaker at industry events.