Debt Collectors And Fraudulent Companies 1 Of 6

By Dean Kaplan+

Identifying fraudulent customer before extending credit will assist in debt collection efforts

Understanding the various types of business fraud before extending credit will decrease the need for debt collectors.

When a company extends credit to a customer, it is extended in good faith. When the customer defaults on the debt, it may be time to hire debt collectors. Companies typically go through a credit analysis before extending credit to a customer. When credit is extended, it is because the company has looked at the customer’s “character” and believes the customer will honor its debt commitments. When a customer doesn’t honor its commitments, and never intended to, this is fraud and is punishable by law. This is the first article in a six part series of articles about the business of fraud. This article will discuss different types of fraud.

The critical characteristic of fraud is that the customer intended to deceive. If the deceit is missing in any default situation, then this situation can not be called fraud even though the creditor may lose out in the end. Incompetence and negligence are not the same as fraudulent. To be considered fraud, the creditor must have been deceived by the customer on a material fact.

Every company is susceptible to fraud. However, companies that are eagerly seeking increased market share and are willing to take on more risk to gain the increased share are particularly at risk. When companies ease credit terms to attract new business, it becomes easier for con artists to take unfair advantage. Creditors in this scenario are eager to attract new business and they want to believe potential customers are above board. Con artists are well versed in how to pass the credit check and they know just what to say and do to fool all the systems in place designed to weed out unsavory potential customers. What is the best way to keep the con artists at bay? Learn how the fraud game is played, and out play the bad guys.

Below are some examples of different scams companies should look out for:

“Overbuys” – (also known as “Bustouts.”) Customers using this scam are attempting to buy large amounts of your company’s products and not pay for any of it. Typically, the customer gains credit from several companies and pays promptly for a few orders from each. These companies then become the scammer’s credit references for bigger and bigger credit lines. Once the relationship is underway, large orders are placed and the scammer soon becomes a slow pay customer and then a delinquent customer. The creditor is the big loser. This type of fraud is usually well thought out and executed requiring significant financial backing. The unpaid for product is then sold at below cost prices to other fraudulent businesses, at swap meets, door-to-door and in on-line market places.

Hit and Run – A scammer moves into an area and places merchandise orders COD. The payment is made with a fraudulent certified or cashier’s check. The scammer is long gone by the time the check bounces, and is scamming some other unsuspecting company in another location.

Repeat Offender – A scammer runs a variety of different types of companies over the years in the same location. It scams only companies in other towns or states so that people living in the community never suspect the company is fraudulent. These types of scammers can indefinitely avoid criminal prosecution because no one around them sees them for the swindlers they are.

Advance Fee Scams – Scammers collect fees upfront for services to be completed in the future. The scammers have no intention of ever providing the promised services, and typically skip town before the victim figures out the scam.

Fictitious Stock Transfers – A bogus company exchanges its worthless stock for the stock of a successful company. The bogus company then creates inflated financial statements incorporating the value added by the successful company’s stock. The inflated financial statements are then used to convince other successful companies to exchange stock for a stake in the bogus holding company. The legitimate stock from the successful companies is then sold off by the bogus company and the revenue is absorbed or used as collateral to acquire bank loans which are never repaid.

Bank Loans and Leases – Bogus trade and bank references are provided by the scammer to obtain loans that will never be repaid or to arrange financing to lease stolen or non-existent equipment.

Anytime a company or a person is scammed, it is an unfortunate event. Debt collectors can help a company go after a scamming customer. Professional collection agencies are well-suited to this type of debt collection because they are experts in tracking debtors down. There is a definite art to tracking down elusive debtors. Collection agencies do this kind of search all the time, and they have many state-of-the-art methods for finding people and companies when they do not want to be found. Debt collectors are also experts in determining if there are any assets there to make collection possible. Hiring a commercial collection agency can significantly increase a company’s likelihood of collecting because of the experience the agency draws from. Because collection agencies typically work on a contingency basis, the client does not pay until the debt collection has been made, making it a cost-effective option for many creditors.

Click here if you are ready to move on to the next article in this six part series Debt Collectors And Fraudulent Companies 2 Of 6.

And be sure to check out the rest of the articles in this series:

  1. Types of Fraud
  2. Commonly Scammed Businesses and Fraud Red Flags
  3. How to Identify A Fraudulent Company
  4. The Unsolicited Order Scam
  5. Unmasking Ownership
  6. Bankruptcy Fraud

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.