Fraudsters that are proficient at swindling and lawbreaking continue to try new schemes and methods, as well as some tried and true ones, to profit at the expense of trade creditors. This is not going away. As one source noted, his company’s write-offs were running “about twice as high” this year because of fraud, especially involving credit cards. An example in play in California underscores the importance of relying on protection tools such as NACM’s National Trade Credit Report (NTCR) or credit information solutions suppliers.
NACM was recently informed of an alleged California-based fraudster hitting up small- and medium-sized businesses for larger-than-usual lines of credit. The company in question, a computer/electronics wholesaler based in Montebello, even had what appeared to be active domestic corporate charter with the California Secretary of State dating back to 2006 and the valid tax permit through the California Board of Equalization. The company’s “proprietors” even took up residence in a high-end office building for several months, meeting in person with vendors’ sales and credit staffs on multiple occasions. Then, as invoices started going well past due, phones and emails started getting ignored and they vanished. The alleged scheme even caught NACM member company, Mouser Electronics, Inc., based in Texas.
“We wrote off $50,000, which stings quite a bit bigger than a bumble bee sting,” said Donald Smith, director of customer accounts. “We would have easily lost another $50,000 or more had we not run an National Trade Credit Report (NTCR) through our local NACM-Southwest affiliate and identified that this was a fraudulent scheme. They did this quickly, mostly from March to May, and it looks like some companies were out well over $100,000 judging from the lines on the report. The report was a really good tool, even if a little after the fact, to stop the bleeding.”
The NTCR on the company, which relied on several other companies that eventually got burned as references early on, showed several red flags: 13 credit lines in excess of $750,000 over the course of two months for a business that didn’t seem size appropriate for such requests and that the company’s officers curiously shared names with a famous actor, comedian and governor, respectively, were among other reasons for concern.
Smith noted Mouser presently integrates the NTCR into its regular risk management processes to alert them to any red flags that could foreshadow or unveil a fraudulent attempt. He noted in reference to the NTCR that “the trade information is invaluable; you don’t get it from a regular credit report from one of the other guys out there.”
Courtesy Brian Shappell, CBA, NACM (National Association of Credit Management) staff writer