Debt Collectors And Fraudulent Companies 4 Of 6

By Dean Kaplan+

Debt collectors know how to determine a suspicious address from a new potential client.
Knowing how to check for suspicious business addresses can help vendors avoid being defrauded and limit their need for debt collection services.

In the complex business world of today, there are unsavory customers out there intending to defraud legitimate companies. If a company has been scammed, debt collectors can definitely be of help in tracking down the scammer and pursuing payment for the outstanding debt. This is the fourth article in a six part series about the business of fraud. This article will focus on the unsolicited order scam as well as identifying fraudulent businesses through suspicious locations.

If your business obtains new orders primarily through your sales staff, be on high alert if you suddenly receive an unsolicited order. Below are some danger signs to take note of:

a. The potential new customer skates around your requests for verifiable information about the company.
b. The customer requests delivery as soon as possible. The customer may give trade show or promotions as a reason for the urgency of the order. Whenever a new customer wants a rush delivery on credit, this is a high risk scenario.
c. If the unsolicited order is very large, be extra careful in your credit analysis because this represents a greater risk for your company if payment is not received. In many cases, fraudulent companies will place small orders at the beginning of the relationship and pay on time to become a “good” customer with an excellent credit history. Once they have established this good reputation with you, they will then place a large order which they never intend to pay for. Beware of the change to a large order.
d. If the potential new customer seems to already fully understand your credit policy, beware. A way to suspect this is if the initial order placed is just below the level which will cause a closer examination of the company during the credit analysis.

Below are some actions your company can take to lessen the chance of being scammed:

a. When a new customer wants an ordered delivered immediately, do not extend instant credit to the customer. Do not let the customer talk you into it even if the reasons stated sound legitimate or they threaten to move their business elsewhere. These tactics are used successfully by scammers all the time.
b. When checking the credit references provided by a new customer, be sure to actually check the references and be sure to ask what size orders the customer has placed with the reference. Compare the size of orders placed elsewhere with the size of the order placed with your company to see if there is consistency across suppliers.
c. If your company suddenly starts to get credit reference calls on a new customer from other potential suppliers, be on high alert as this can signify that the customer is using your company to get credit set up with other suppliers it intends to defraud.
d. If your company sells out of a wholesale enterprise and your new customer wants to take possession of product immediately, do not allow the customer to use credit for the purchase. Insist that the customer pay at the time of purchase.
When taking on a new customer, it is not unusual that your company would never have the reason or opportunity to visit the location of the customer. Because of this, fraudulent companies know how to appear to have a legitimate location, when in actuality, they do not. Below are some things to look out for relating to location:

a. Fraudulent companies frequently use short term, cheap rental locations. Fraudulent companies also change locations frequently.
b. Fraudulent companies often utilize mail drops. Mail drops enable the fraudulent company to have a street number address which makes them look legitimate rather than a post office box number.
c. Fraudulent companies often use a strip mall location which provides them with a way to sell the stolen merchandise to walk-in customers.
d. Determine if the customer’s address is consistent with where a business would be located. For example, a residential address is not appropriate for a company involved in wholesale, retail or manufacturing.
e. If the ship-to address is not the same as the business address, be on high alert. The ship-to address may be a temporary address which will disappear along with the business address, leaving you high and dry.

Below are some things to do to avoid location scams:

a. Verify how long the customer has been at the current location by checking with an outside source or the building manager.
b. Ask a supplier or other business associate in the customer’s area to drive or stop by the location to verify its legitimacy.
c. When checking the credit references of the new customer, ask the reference how long they have been doing business with the customer. This will give you a sense of how long the company has been in business.

Debt collectors do not usually worry about unsolicited orders, but they frequently are searching for a debtor’s true location. It is not unusual for a collection agency to spend a lot of time tracking down debtors who have disappeared and do not want to be found. Because collection agencies utilize the most state-of-the-art search techniques, they are typically much more successful at locating dead beat debtors than in-house collectors. In addition, once the debtor is located, collection agencies are very good at finding out about the debtor’s assets and ability to pay. Using this information, the debt collector is able to have a debt collection strategy already in mind when the first phone contact is made. The debtor is usually caught off guard because the scammer does not expect to be found. If the debt collector can engage the debtor this usually indicates that there is a chance for debt collection. Collection agencies usually do not get paid unless they collect, so this can make using an agency very cost effective.

Click here if you are ready to move on to the next article in the series Debt Collectors And Fraudulent Companies 5 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.

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