£140bn is lost to fraud each year by the UK private sector.[1]
From fake invoices to counterfeit goods, fraudsters are getting more and more intelligent and businesses are being targeted for their high-value transactions.
The fall out from being a victim of fraud or an illegitimate business can be expensive and can cause reputational damage should your customers find out.
Thankfully, there are some simple steps that you can take to verify you are working with legitimate companies.
1. See Them Face To Face
Nothing beats a factory audit.
Speak to employees, not just the management team. This will also give you an insight into their capacity and capability. It also helps in the effort to eliminate modern slavery and forced labour.
For companies based further afield, it’s common practise to instruct an agent to conduct an audit. This is particularly common in Asia.
It also doesn’t hurt to inform the company that you would conduct a factory audit before placing and orders. This can put scammers off and be a big red flag for whether they are legitimate businesses!
2. Check Registration Data
Businesses in the UK can be checked on Companies House.
For other countries, you’ll need to find their local equivalents. For example, in China you can contact their regional Bureau of Industry and Commerce. Each company will have a unique business registration number that can be verified.
For businesses based elsewhere, it’s still important to check their legitimacy. Sites like Global Sources and the Hong Kong Trade Development Council will only have legitimate companies listed.
3. Check Professional Registries
Depending on the industry, they may be part of a professional register.
For example, all financial services companies operating in the UK must be registered with the Financial Conduct Authority. Any company who approaches you who isn’t registered should be avoided. This registration means they have to operate within the Handbook of rules that the FCA oversees.
Other examples include testing and certification companies which should be registered with UKAS. Glazing firms can register with FENSA and any ISO certificates can be verified online.
4. Run a Credit Check
Credit checks are easy to get hold of, with many companies like Dun & Bradstreet and Experian offering affordable options.
They’ll present the information to you in a colour-coded and easy-to-read way.
For verifying legitimate businesses, the key things to look out for are:
- How long they have they been trading
- The acid test ratio - do they have enough cash to cover their upcoming debts?
- Do they pay their suppliers on time?
Having cash in the business and a trading history demonstrates that they are legitimate. It indicates that they have investors, previous customers and a supply chain that is being paid.
5. Check Trade Shows
This is an extension of checking that they are available face to face. Whilst non-attendance at trade shows doesn’t mean a company is illegitimate, a lack of a public-facing personality can be a warning sign.
This is especially true for large-scale, international trade shows where you would have expected a company to have attended. If a company is alleging to have a large, multinational presence then it will have employees who attend events.
Sending people to meet face to face is a sign that they are legitimate and not operating out of the back of a shed.
6. Call Them!
It seems so simple, but a common trick fraudsters use is to hide behind the names and addresses of real companies with fake phone numbers.
It’s likely that illegitimate companies only have mobile numbers, which can be quickly used and discarded as soon as the trick is up.
Only having a mobile number is sensible for a small company, but a business that is operating out of a fixed premise should be contactable by landline.
If you suspect this, find the company’s legitimate website and call them directly, preferably on a landline. If it’s answered by a genuine employee then you can verify what you know so far.
7. Check Their References
A lot of companies will put up testimonials or highlight the logos of prestigious customers on their website.
The only way to confirm whether it’s true is to pick up the phone and check. Companies should be willing to give out the contact names of genuine customers. A bonus of this is that you get to talk about the quality of the goods and services!
Another way is to get a reference from their bank. This can prove their existence as the bank should have done their own due diligence on their customers as well.
8. Check How You Pay
Payment in advance is a huge red flag!
Payment up front should be considered a last resort. Sometimes, it’s required for large value items with a high material cost such as buying goods for a capital project. However, this should be limited and should be for a small portion of the total price.
If payment in advance is necessary, other precautions can be taken. For example, paying against a vesting certificate or bank guarantee.
Conclusion | What To Do If You Suspect Fraud
These steps are quite simple, most of them are free and it could be the difference between finding a legitimate business or losing your money.
A lot of the factors are nuanced – all these measures should be used together to form a picture of a legitimate (or otherwise) company. Not having a landline doesn’t mean a small business is trying to scam you! Nor does attending a trade show mean that someone isn’t selling counterfeits.
The purpose is to build a rounded picture of the company you would like to deal with and confirm their story adds up.
For companies based outside of your home country, international agencies can assist you in verifying the legitimacy of someone you might do business with.
Fewer than 20% of incidences of fraud are reported in the UK. Reporting to Action Fraud is the only way to fight against criminals.
[1] https://www.nationalcrimeagency.gov.uk/what-we-do/crime-threats/fraud-and-economic-crime
