ListServe Thread: Credit Application Fraud Question

First Posted: October 19, 2023

I was wondering if the following has happened to anyone and how best to handle it:

We recently had a couple of fraud cases involving people assuming the identity of executives at our target companies.  We received a completed credit application from someone impersonating a target company. A credit review wouldn’t flag anything because the company is a real business – even a Google search and background check will indicate is a real company. We caught one because the item getting ordered was a rare sale, and they had ordered a large amount.  We conducted a Google search on the drop ship address, and it was in a remote area. Additional research, it turns out, uncovered the REAL business did not apply for credit terms and never submitted an application.

Has anything like this happened to anyone? How do we safeguard against “Fake” credit applications impersonating a real business?

• Thank you, Magdalena Romo, Credit Manager, LK Packaging

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The answer is in the details.

We are targeted fairly often and catch 99% of the culprits. Even with a complete credit application and additional documents, such as purchase orders, the prospective customer can appear legitimate. They even order stock material. But when you dig deeper, compare the applicant information to credit reports, internet searches, and more, you can usually find enough doubt to warrant a secure form of prepayment. Subsequently, they disappear quickly.

Unfortunately, you will never be 100% secure when you offer open or unsecured payment terms to a customer. All that you can hope for is to catch the majority of the scammers and limit the losses to the few that get by you. Constant training of your staff and managerial oversight of those larger or unusual orders will reinforce your policies and procedures.

• David B Bernardino, Director of Credit Services and Facilities, McNichols Co.

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Totally agree. Not an easy task. Yes, with experience and education, scammers are less likely to get through (and your fingers are also crossed!). Close observation of payment trend behaviors, and open professional communication with customers is helpful of course. Nothing is 100% foolproof unless you do have some financial guarantee.

• Pam Byk, Credit Risk Specialist, XL Screw Corp.

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