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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.