Case Study: Fraud
An unpleasant fact of life is that fraud can happen. Whilst we all do our best to put measures in place to avoid fraud, it can still happen. Unfortunately, we recently came across a case of fraud, which resulted in a large loss for the company, our client. Effectively the buyer imitated a large company and placed and received an order, all without the knowledge of the legitimate company. This type of fraud is called Buyer Impersonation.
How did it happen?
It started with an email from a large buyer to our client enquiring about buying some goods. Our client naturally thought this was fantastic, a big order coming from a very large organisation. This could be big business! Our client sent through their price list and received a reply requesting pretty much everything on the list. Amazing news, the order is even larger than expected! Credit checks were completed meaning the supplier was comfortable offering credit terms to the buyer. The order was placed, with no negotiation on price from the buyer.
The supplier was requested to ship the goods from their warehouse to a delivery point in the UK. However, they had already specified delivery as Ex Works (i.e. collection) from the factory in Germany.
Before the order can be finalised, the supplier had to confirm some tax and customs details. These were initially incorrect and after further exchanges correct details were provided.
Now everything seemed to be back on track, a purchase order was provided by the buyer.
The invoice was sent to the buyer and therefore payment would be expected at the point of due date. Upon the due date, no payment was forthcoming. The supplier couldn't reach the buyer using the contact details that were used prior to the delivery. After numerous attempts, the supplier then decided to look up the buyer on the internet for other contact details. They used these details and contacted the company, although this time they made contact with the legitimate company, who had no record of the order ever being made or of the names of the parties involved. This was when the supplier's concerns became reality. The fraudulent buyer was pretending to be a legitimate company.
Red flags
This kind of fraud is not uncommon but there are ways of spotting them.
- An order out of the blue from a large organisation should be scrutinised the same as any other. It is always wise to do some research on buyers by performing an internet search. This will allow you to verify the order has come from a valid source.
- Is the email address using the same domain as the actual website?
- Does the logo on the order look the same as the one on their website?
- What contact number did they provide, does it match the website?
- Call the company using their published contact details and ask to speak to the person who has made the enquiry/order to confirm they are genuine.
- It is very unusual for a business not to negotiate on price especially if it's a large order. If no negotiations are attempted perhaps the order is too good to be true.
- Beware of incorrect information being provided. It could be a simple mistake but it's always worth being vigilant to make sure you aren't being defrauded.
- Beware of last minute changes to delivery addresses. The buyer changing delivery address at short notice can be a tell-tale sign that something is not right. Try to verify the address again with the company directly. In this example the goods were ex works which means you need to be even more certain of who is collecting them.
As this case highlights, it is imperative that you engage with a qualified broker to help you navigate through the trials and tribulations of trading on credit. Trade Credit insurance will not protect you against fraudulent activity so it's important that you remain vigilant and having a second opinion will help avoiding these pitfalls.
For further information check our other blog about buyer impersonation.