Booming economy - beware of debtor fraud

08 May 2007 CofaceZA

Experts are warning of increased credit fraud in the current economic boom.

An increasing number of fraudulent schemes are being uncovered, such as fraudsters posing as "buyers" attempting to defraud suppliers of vast sums of money.

Credit Insurer CofaceZA MD Garth de Klerk, warns that there have been a number of cases recently in which fraudulent companies have been started for the sole purpose of defrauding creditors.

"Or owners have expropriated assets once companies have begun deteriorating financially and when liquidated, leaving nothing for creditors," he says.

Klerk says in many of these cases, the scam involved the buyer absconding shortly after products were delivered and payment for the goods were due.

"In such cases, the services of a private investigating company are then needed to assist in tracing assets that company directors may have moved or estranged." 

De Klerk says there are numerous signs to look out for when identifying credit fraud.  "The sudden start-up of a shelf company or new company in a high-risk industry with low start-up or capital costs, is a potential risk," he says.

De Klerk says other warning signs could include:

* An application where there is immense buyer or supplier pressure for the credit insurer to provide cover.

* Trade references are given from a totally unknown or new company, or if only cellular numbers reference are provided.

* The auditors are newly registered or unknown.

* The starting date of the business substantially differs from the registration number of the business.

* If there is excessive or above average information available on a small business, or if the financial statements are ready very shortly after year-end.

* Where the company's financials are too good to be true, this can also indicate fraud.

De Klerk says another situation in which to exercise caution is an urgent request for credit cover that is received on a Friday afternoon or during the December holidays. 

"Also linked to this is if a company with a solid trading history of 2-3 years has a sudden influx of many small (about R50 000) requests across all credit insured policy holders. In our experience this is a strong scam indicator," he says.

"These are merely some of the indicators in which fraud may be a concern. Should a business uncover one or more of these indicators in their transactions with a buyer, a much higher degree of caution is advised."
"In extreme cases one should even consider walking away. In all circumstances when extending credit it is wise to deal with a credit partner who has experience on how to professionally identify, assess and tackle a variety of these circumstances," says de Klerk.

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