Let's dive into a topic that is incredibly important to many SME companies at the moment – fraud. Fraud and fraud is a threat that constantly lurks on the horizon, and knowing how to identify fraudsters in time is crucial to protect your business.
We'll get a little closer to that in this article, where we give you the tools to detect potential scammers in time and minimize the risk of loss. We'll look at behaviors and indicators that can help you identify customers acting in bad faith.
So what should you pay attention to with your customers?
Attracting new customers should always be a cause for celebration, but it's important to exercise caution. Regardless of the size of your business, everyone is at risk of being scammed. KYC (Know Your Customer) is a requirement under the Money Laundering Act that requires companies to document that they know their customers sufficiently and can identify potential risks. The real challenge arises when a customer acts in bad faith.
An example could be an established company with a healthy economy for many years that goes through a change of ownership when the owner retires. They sell the company to a new group of owners, who turn out to have only one purpose – to empty the company of easily tradable assets.
This pattern often repeats itself, with the new owners buying expensive mobile phones, computers and designer furniture for the company and then letting the company go bankrupt. This leaves suppliers with huge losses.
What signs does clients, acting in bad faith show?
Using comprehensive data analysis Experian has identified a number of parameters that, while individually may not indicate any concern but when combined, create an increased risk of potential fraud. These parameters therefore deserve extra attention. There are certain activities and behaviors of a customer that should set alarm bells ringing.
Change of ownership: When there is a change of ownership with one of your customers
Fast financial reporting after year-end: If your client presents financial statements very early after the end of the fiscal year, this could be a potential warning.
Faster financial reporting than last year: A significant shortening of the timing of financial reporting compared to previous years may be suspicious.
Improved performance: If a customer suddenly goes from negative numbers to positive or shows a significant improvement in a small positive result, it should get your attention.
Management changes: Frequent changes in management can also be an indicator.
It is important to emphasize that these incidents themselves can be normal. It is the combination or frequency of them that should give cause for concern. If you find that your customer meets several of these parameters, we recommend initiating a dialogue with the customer to clarify the situation.
As a business owner, it's crucial to understand that the world doesn't stand still and that your customers' behavior can change over time. Therefore, Experian strongly recommends that you continuously monitor your customer portfolio. Prevention is key to protecting your business from fraud and fraud.
Written by Nicolai Tonnesen / Experian Denmark