Credit managers are experts at using various pieces of information to make sound credit decisions but is enough being done to detect fraud before goods are despatched and bad debts are incurred; not to mention the costs of attempting to recover bad debts ?
With fraudsters becoming more sophisticated, it’s important for companies to protect themselves from fraud and loss. Identity takeover has grown 59%1 in the past two years which means it’s more important than ever to know who you’re doing business with and proactively manage the risk of fraud.
A recent fraud case
We were recently made aware of a fraud case in the trade credit industry:
- The fraudster applied for a new account using a stolen identity. The applicant was posing as a sole trader.
- The credit limit requested was under the threshold for close due diligence to apply. In other words, it’s likely the fraudster had knowledge of commonplace thresholds.
- The application was approved.
- Building materials were immediately purchased and dispatched.
- The “sole trader” did not pay.
- The investigation revealed that a stolen identity had been used to secure the credit account and goods could not be recovered.
Three ways to prevent fraud
Fraud detection methods used by major credit providers such as banks and asset financiers are now available for use by trade credit providers. The company in this case study is currently implementing three different fraud prevention processes into its customer on-boarding framework to ensure they only deal with legitimate businesses, and you can too.
1. Identify the people you’re about to do business with Verifying the identity of directors and sole traders at the point of application (online or face-to-face) can help minimise risk by ensuring you are doing business with a real person, not a fraudster. Veda’s identity verification service performs an identity check in real time, in seconds, using up to 25 independent data sources to confirm the person is who they say they are.
2. Run a fraud assessment Take identity verification one step further by running a fraud assessment to determine the likelihood that an application is an attempt at fraud. The assessment can tell you if the person is using a stolen device, such as a laptop or mobile phone, and if they have a history of fraudulent behaviour.
3. Manage your own rules Develop your own fraud and identity verification rules under a risk-based approach whilst maximising your business objectives.
Imelda Newton is General Manager, Fraud & ID at Veda. www.veda.com.au