Normally when we imagine victims of business fraud we think about a clueless consumer duped by a devious salesperson. However, business fraud exists at all levels, and many victims are actually other businesses. A surprising number of businesses fall prey to fraud, allowing non-existent, or otherwise fraudulent businesses, to establish lines of credit. It is almost always impossible for even an experienced and talented collection agent to collect from a nonexistent business, making this type of fraud extremely costly.
The good news is that most cases of this kind of fraud can be prevented with a little caution and research. As a commercial collection agency, we regularly get claims where research has not been done and we discover that the information provided was either misleading or outright fraudulent. In either case, it is no surprise that invoices were not collected on by our clients.
In this article, we provide seven free, or low cost, ways to easily detect fraud in as little as 5-10 minutes. This list is not meant to be an exhaustive list of potential fraud-detecting activities, but a bare minimum of research you should be doing on any companies to whom you are extending credit.
Look for Professionalism
The first thing to do is to look for the company’s website. Although there may be some, small, local businesses for whom this is not true, generally speaking, if a company does not have a website, has an unprofessional website, or has a website that is under construction, it’s a warning sign. Similarly, if the company’s email address is a free service such as Gmail or Hotmail, as opposed to their own domain name, it is also a warning sign.
Confirm Information
The next step is to verify that the contact information on the website is the same as provided on the credit application, purchase order, stationery, business card, or whatever other materials they give you. This helps to ensure that you have found the correct website as well as confirming that the customer is providing consistent contact information.
Make a Call
On the website, you should find a phone number. Any company that does not publish a phone number means they don’t want their customers calling. The lack of a phone number on a website is a common factor on a significant portion of the fraudulent cases we see.
Type the phone number into a Google search to see what comes up. Cross-reference that information with the information on any paperwork submitted by the potential customer. If the number doesn’t come up in your search as directly tied to the business you need to learn more about that business before extending credit.
It is very important to call phone and fax numbers to verify that they are valid. Be careful if:
- The phone is not answered in a professional manner;
- The voice mail system does not identify the company;
- You can’t get a live person via the voice mail system;
- It is a cell phone voice mail greeting;
- It is a direct line to an individual.
Make sure you get the company’s main phone number, and for smaller businesses get the owners mobile phone number and direct email address. If the business phone is a mobile phone, that is typically an indicator of the size, or possibly the legitimacy, of the business.
Check Corporations
If the company indicates they are a corporation, LLC (limited liability company), or partnership, confirm this with the appropriate Secretary of State. Forty-seven of the 50 states have free websites where you can get this information with a simple search. A complete list of these sites, with links directly to the search pages, is provided on our website at www.kaplancollectionagency.com/secstlinks/. Also on this page is a free downloadable file that you can import into your web browser. It creates a favorites folder in your browser with links to all 50 states for easy future reference.
Confirm that the name and address registered with the state is consistent with the information on the credit application, website, stationery, and other places. Make sure to investigate any discrepancies. If the business is required to have a professional license, such as a contractor, real estate broker, or medical professional, use a similar process with the respective licensing authority’s online website.
Addresses
Once you have verified that the business address is consistent, verify that it is valid and a commercial location. Type the address into Google Maps. Use the satellite view to quickly establish the type of building at the location. Use street view when available and when you feel the need to take a closer look. Further investigation is recommended if:
- The building does not look appropriate for the type of business;
- Signage viewable on street view shows a different company name;
- It is a residential location.
Most importantly, confirm that this is not a mailbox service, such as a UPS or Fedex Store, or executive suites location. Over 90% of the fraud cases we see have a mailbox service, executive suites or residential location as a primary address. There are a number of different ways to try to determine if a commercial location might be a mailbox service such as a UPS store. Google Maps typically will give you a list of the businesses located at a specific address. More research is needed if:
- Several businesses are listed at the address
- The businesses have suite numbers, which might actually be mailbox numbers
- The name of one of the businesses indicates a print, copy, package or mail service
If nothing shows up on Google Maps, copy and paste the address into your default search engine for a quick search. In a recent fraud case, Google Maps listed 15 other business names at the location, but not the UPS Store. But, the first result when we put the address into regular Google search gave us the UPS Store phone number at that address.
If you ship merchandise to a mailbox, you are not going to have proof that your customer received the merchandise. You will only have proof that it was received by the mailbox service. Your debt collectors will hit a dead-end if the debtor skips on payment.
If you suspect or confirm that an address is a mailbox service, ask the company for their physical location and confirm it. If the location is a mall unit, confirm that it is a physical store and not simply a kiosk in the common area. Confirm any home addresses provided through Internet search and maps. It is critical to have a home address if the business does not have a permanent physical location or if you get a personal guaranty.
Check References
Use the Internet to get the phone numbers and other contact information for the trade references provided by the potential customer. Some fraudulent businesses provide the name of a legitimate company as a reference, but the contact information is directed towards a conspirator instead of the actual company.
If you are dealing with a legitimate, established company, this process can take less than five minutes and be performed by anyone who uses the Internet.
Check Reputation
In addition to confirming that the information you’ve been provided is correct, you should also dig a little into a company’s reputation. Many non-fraudulent businesses are still horrible credit risks. Do a general Google search for their name, and pay attention to reviews on sites like Yelp, Google, the Better Business Bureau, and Ripoff Report. You might also want to consider researching the owner’s personal reputation. If you find that the company has a bad reputation, you may want to reconsider doing business with them.
Use Common Sense
You know that if something sounds too good to be true, it probably is. When faced with a great deal or offer that requires you to skip your normal review and research steps, that’s when you should be especially wary.
Conclusion
It’s important to remember that uncovering a red flag does not mean that fraud is being attempted, it simply means that you need to do more investigating. In these cases, you may want to get additional forms of contact information, a copy of a drivers license, business license, or utility bill for the business, and check trade references and credit reports more carefully. It’s also important to remember that one of the easiest ways to avoid becoming a victim of business fraud is to run a credit report on new clients.
At Kaplan Group we hope you never need our services, that’s why we provide resources like our Credit Report Survey guide, and tips like this for avoiding these issues. But, if you do find yourself with unpaid invoices, we’re here to help.
Illustration: https://www.kaplancollectionagency.com/fraud-detection-tests/
