How to protect your business against credit fraud

Updated on 04 October 2024

Summary

The top four red flags of business fraud

Business fraud is not just a local issue: credit fraud is a rising problem worldwide that has been accelerated with digitalization and remote working. Indeed, identity theft is the most common type of business fraud in trade credit. While fraudsters may adopt a variety of tactics, the good news is that there are a number of common red flags that should alert a company’s credit department to a problem.

1. Contact details

If a potential client’s email address bears a generic email handle rather than a company name, it should set off alarm bells. But these days, fraudsters take it one step further, by creating perfectly professional email addresses. For example, if a real company’s email handle is @chemicalproducer.ca, the fraudster might use @chemicalproducer.net. Always cross-check clients’ email addresses via their company’s official website.

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

Fraud can happen across many industries, but some are more prone to it than others. If your company is selling tangible goods that can be easily sold on the black market—such as construction materials, chemicals or tires— it is wise not to release any orders without doing the necessary credit checks.

4. Urgency

If a new client places an order and stresses the urgency, your credit department should make sure all the points above check out. Urgency is a common tactic to all types of fraud: the aim behind it is to prevent thorough checks from being carried out.

Helping our clients protect themselves

Business fraud may be on the rise, but the knowledge at our disposal for detecting it is growing at the same speed. Thanks to our wealth of experience and global reach, Allianz Trade’s analysts have the tools to recognize a scam when we see it and offers solutions to help companies protect themselves. And as a senior underwriter at Allianz Trade, part of my job is making sure our clients are armed with this knowledge, too—so they can stop a fraud attempt before it’s too late.

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