Legit or Leg It? The Dangers of Dealing With Less Than Reputable Operators

With incidents of fraud on the rise over the course of the COVID-19 pandemic, we’re all having to be even more vigilant in our dealings, especially online.

But while the risks of phishing scams and lax digital security are well known, companies are still very much at risk from a more traditional approach to con artistry - doing business with cowboy operators whose primary aim is to rip you off.

The private sector is by far and away the biggest loser when it comes to fraud in the UK, accounting for up to three quarters of all losses amounting to well over £100bn a year. 

Business fraud comes in many different guises. We tend to think of so-called ‘white collar crime’ in terms of rogue traders on the inside of a business embezzling funds out of payroll or pension pots, or else directors fiddling the books to avoid paying the tax man and other creditors.

But a significant proportion of business and financial fraud involves unscrupulous businesses deliberately setting out to scam other companies, not to mention members of the public.


Common types of fraudulent activity  

  • Because of standard payment terms of 30 days or more, it often takes suppliers well over a month to chase up invoices that haven’t been paid for items already sent. By the time the victim realises they’ve been the victim of a scam and the invoice details fake, whoever made the purchase will have had plenty of time to cover their tracks and erase all traces.
  • Deliberate non-payment for goods or services purchased. Dodgy directors are notorious for playing the very permissive rules that exist around debt repayments in this country. A common ruse is making a company insolvent or declaring bankruptcy to avoid having to pay debts owed.
  • Non-delivery of goods or services. On the flipside of this, just like consumers, businesses are at equal risk of paying in good faith for products and services that simply never arrive, or when they do are of dreadful quality and nothing like what was promised. Extra care needs to be taken with pay-upfront requests for this reason.

So what can businesses do to avoid these risks? The starting point for avoiding scams is to check that you are dealing with a legitimate organisation in the first place.

This can be done by carrying out a few simple checks at the very start of a new business relationship. In the financial industry, this has been formalised through a number of regulatory requirements known collectively as ‘Know Your Customer’, or KYC

KYC has the specific intention of reducing financial fraud by obliging banks and other institutions to go through a process of due diligence checking out every customers. Nowadays it has coalesced into a formal series mainly digital background checks, a bit like the credit ratings checks financial providers carry out on consumers. But all companies can follow the broad principle of scoping out the credentials of any business before contracts are signed and money or goods are exchanged, without access to formal KYC channels.

In our next blog, we’ll run through three things every business can do to check they are dealing with a legitimate, reputable company from the outset.

Image by Gerd Altmann from Pixabay

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