By Dean Kaplan+
The need for debt collection can be minimized by proper credit analysis of potential new customers. It is important to examine each new potential customer carefully enough to ascertain the credit risk they might represent down the road. This is the final article in a seven part series about what the credit department should do to analyze the credit worthiness of new customers. This article will focus on identifying a fraudulent credit applicant.
Sometimes when a new customer provides requested information for the credit analysis, something just doesn’t seem quite right. If the credit department gets this sense about a potential new customer, extra care should be taken in the analysis process. Here are some things to look for in the credit application which might point towards a fraudulent applicant:
a. A company billing address or shipping address that somehow seems familiar as a suspicious business.
b. Owner names that seem familiar as having been associated with a suspicious business.
c. Compare the company name, address, telephone number and owner’s name across the various credit sources you have collected such as the credit application, credit reports, banking information and references. Discrepancies might indicate a suspicious business.
d. Be wary if you receive an unusually large opening order which seems inconsistent with information you know about the customer’s business and what a typical order should be.
e. Be wary if the billing address and the shipping address are different for a small company.
f. Be wary of reference names that seem familiar as having been associated with a suspicious business.
g. Be wary if the applicant provides several references that you have no previous experience with. Oftentimes, new customers will provide references that you have received from other customers.
After the credit analysis is complete, if you feel suspicious that the applicant might not be above board, what should the credit department do? The first thing to do is stop and think. Accusing a company of applying for credit fraudulently is a serious thing. If you are wrong, the potential new customer could be lost, and your company’s reputation may be damaged. Look to your credit department and review the facts and suspicions you have with someone who is objective. See if they come to the same conclusion you did without leading them there.
If the suspicions continue, the next step is to contact the unfamiliar references. When making the calls, take detailed notes. Listen to how they identify themselves and their business. Try to give them as little information about your company as possible. Where possible, try to contact the various unfamiliar references over a few days. If the application is fraudulent, most likely all the unfamiliar references are one person. The key is to not let them become aware of your company’s suspicions relative to the applicant.
Be sure to contact listed references that you are familiar with and have a trust in. Talk to these references about the facts and suspicions you have regarding the applicant. Ask for their honest opinion and reference for the applicant. Listen carefully to any advice or help they might offer.
If, in the end, the suspicions about the applicant continue, the next step is to get professional help. There are two sources for this help: The National Association of Credit Management and the Federal Bureau of Investigation.
Collection agencies are sometimes hired by companies to help track down fraudulent customers. These customers typically try to disappear and avoid paying for orders that they have received. Frequently, their businesses have failed and they have abandoned the enterprise in its entirety. Collection agencies are very good at finding debtors who have flown the coop. They are experts at skip tracing and other location strategies, and can sometimes find people when everyone else has come up empty. The debt collection process in these cases can be very difficult. However, if the debtor still has assets, sometimes debt collection is possible because collection agencies are able to negotiate payment terms over a period of time. Because professional debt collectors are experts in commercial collections, they can come up with creative ways to obtain payment from debtors. The key is to not wait too long once an account is past due. The older the debt is the less likely it is to be collectible.
Click here if you missed previous articles in this seven part series Credit Analysis To Promote Successful Debt Collection 1 Of 7.
Don’t miss the previous articles in this series:
- Evaluate New Customers
- Credit Application Development
- Credit References
- Financial Statements and Credit Reports
- Credit Decision
- Purchase Orders
- Identifying A Fraudulent Credit Applicant
The Kaplan Group is a boutique collection agency specializing in large (over $10,000) debt collections due from businesses. Founded in 1991, the company has a stellar reputation (A+ rating with the Better Business Bureau) and is recognized as one of the leading collection agencies for results on large and complex matters.