Summary
Introduction
First, he finds his target companies: chemical producers that are covered by trade credit insurance. Then, he identifies a major buyer in his targets’ industry: a pharmaceutical company for which Paul can easily obtain financials and contact information. He prepares a standard credit application pack in the pharmaceutical company’s name and sends it to all his targets, who happily fulfill the orders as they’re covered by their respective insurers.
Two months later, Paul has long since received his goods and sold them on the black market, but the invoices are still outstanding. His contact details turn out to be dead ends. And when the chemical producers reach out through the pharmaceutical company’s official website, what do you know? They’ve never heard of Paul.
I see scenarios like this on a regular basis. And the kicker to this story is that the unpaid invoice will not be covered by trade credit insurers, because most policies don’t cover a sale when goods have been delivered to a different company than the one stated on the invoice.
The top four red flags of business fraud
1. Contact details
Another giveaway is if the delivery and invoicing addresses don’t match, and especially if they’re not in the same country. A Google Maps search could help determine if the delivery premises look legitimate.
2. Financials and other documents
Financial documents are a very good place to look if suspicions rise based on a client’s contact details.
There are many inconsistencies that can be found:
- Audited financials are available shortly after year-end (realistically, an audit takes at least three months).
- Audited pages differ in format or color from the rest of the company’s financials.
- The auditors named on the financials differ from those generally used by genuine companies, or their signatures look copy/pasted. In this case, contact the auditors to confirm they signed the financials.
- Figures are in international, rather than local, currency (unless you’re trading in one of the few countries where accounting laws authorize the use of international currency).
- Financial figures from first-time clients are overly positive.
- Documents are covered in an exaggerated number of official-looking stamps.
3. Sector
4. Urgency
Helping our clients protect themselves
Got questions? Connect with Natasha
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