Credit Insurance and Fraud Prevention: Protecting Your Business from Fraudulent Transactions

Introduction to Fraud and Its Impact on Businesses

Fraud is a constant threat to businesses of all sizes. It involves deceit to induce someone to surrender their property or rights, often leading to financial losses. Whether it’s government fraud, healthcare scams, or crowdfunding deceptions, the impact is widespread. Learn more about fraud prevention from ReportFraud.ftc.gov.

Common Types of Fraud: What Businesses Should Know

Fraud can take many forms, from simple trickery to complex schemes. These include:

• Government fraud: Manipulation of public funds or services.
• Insurance fraud: False claims, such as fake auto accidents.
• Business fraud: Employees or outsiders defrauding their employers or clients.
• Online fraud: Fake campaigns or impersonation schemes, like the recent GoFundMe scam. Read about common online scams at the Federal Trade Commission.

As fraud becomes more sophisticated, businesses need to stay vigilant to avoid falling victim to these scams.

How Trade Credit Insurance Helps Prevent Fraud

A lesser-known benefit of trade credit insurance is its role in preventing fraud. Businesses that use trade credit insurance are better protected from fraudulent transactions, such as the scenario described below.

A Real-World Example of Fraud: A Cautionary Tale

Recently, we encountered a case where fraud nearly led to a substantial financial loss for one of our long-time clients. The fraudsters posed as a well-known food manufacturer, attempting to gain access to a credit limit. Here’s how the fraud unfolded:

1. Initial Red Flags: The client requested credit coverage, but the insurer declined due to negative news about the company. Our team worked to gather additional supporting information.
2. Deceptive Financials: The fraudsters provided seemingly legitimate financials for 2023 and interim 2024, which appeared strong at first glance.
3. Impersonation of the CFO: The emails appeared to come from the company’s CFO, but closer inspection revealed that the domain name was slightly altered, signaling an attempt at impersonation.

The fraudsters used a fake website and email to trick our client into believing they were dealing with a legitimate company. The purchase order included a shipping location different from the billing address, a classic sign of fraud.

How Fraudulent Orders Work: Recognizing the Red Flags

To prevent similar scams, businesses must be aware of how fraudsters operate:

• Fake websites: Fraudsters create websites with names and URLs that closely resemble legitimate businesses.
• Fake emails: Emails may appear to come from company insiders, but upon closer inspection, the domain or sender may be a subtle imitation.
• Unusual shipping addresses: Fraudulent orders often use shipping addresses that differ from billing addresses.
• Out-of-the-blue purchase orders: Fraudulent orders may be unsolicited and not come from traditional sales channels.

Why Vigilance is Key in Fraud Prevention

In this case, had the client proceeded with the order and shipped the product, it would have resulted in non-payment, as the fraudulent entity did not exist. This highlights the importance of:

• Reviewing communications: Always verify emails, purchase orders, and financial documents. Learn more on how to prevent fraud from the Small Business Administration.
• Using trade credit insurance: It can help protect your business from non-payment due to fraud.
• Regular training: Ensure your team knows how to spot the signs of fraud and acts quickly when red flags arise.

Conclusion: Protect Your Business with Trade Credit Insurance

Trade credit insurance is not only a safeguard against non-payment by legitimate customers but also an essential tool in preventing fraud. By working with an experienced insurance broker, you can help protect your business from fraudulent transactions that could otherwise lead to significant losses.

Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop credit and political risk transfer solutions that provide value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring a complete understanding of policy wording and delivering excellent responsive service.