Did you know that the cost of fraud is increasing? Specifically, it has increased19.8% since 2019, according to a study by Lexis Nexis. Take a moment to think about that, because every year scammers get more sophisticated in the way they target businesses.
PwC Global Economic Crime and Fraud Study 2022highlighted platform fraud as the most damaging crime, which accounts for three-quarters of all reported cases. If that wasn't bad enough, PwC estimates that every dollar lost to fraud costs US and Canadian companies an average of $3.75 and $3.19, respectively. These figures should be a wake-up call for companies to be more proactive in conducting due diligence on companies, especially when working with foreign companies.
Working with foreign companies may seem exciting and provide growth opportunities for your business, but you shouldn't just say 'yes' to working with them without researching them. What if they are on a sanctions list? What if they don't even exist and you've been the victim of a scam? We help you navigate this process with tips on what to look out for when working with foreign companies.
Check the company's website.
Your first point of contact is the company website. You want to make sure the website exists and you go to the right place.
Look up the address and phone number
Start by looking at the company's website to see if it lists a phone number and business address. Google Maps will quickly tell you if the business has a real address. If an address doesn't show up on Google, call the number to confirm someone from the business is available to talk. Either a company representative will answer or the number will not be in use. Both scenarios are useful to ensure that the business is legitimate.
Still not convinced that the company is legit? An additional step is to search for the same business address in different cities or locations. If the same details appear, that's a red flag.
Make sure the URL is safe and going to the right place
Pay attention to the URL of the website and make sure it is secure with https:// at the beginning of the address. While this is not a 100% guarantee of scammer detection, it does show that the website owner is using a protected process to transmit data.
A pro tip is to check the URL usingGoogle Safe Browsing Transparency Report. The tool is excellent at detecting fake websites and providing data on suspicious content. Or you can check the domain name withWHO. This site is ashould havein its anti-fraud toolkit because it shows details of who owns a domain address, how long the website has been running, contact names, and business addresses.
Read all pages of the website
Don't just go to the home page and then exit. Review each page to make sure it's not just the shell of a site built to fool people. Go to the website to see if it describes the company's mission and the products/services it offers. Go to the About page to learn more about their management team (cross-reference them on LinkedIn) and to see if they have any job openings listed. The absence of these can be a warning sign that the company does not exist. Don't stop there. Go to their product pages to see what specific products/services they offer.
It's worth looking at as many pages of the site as possible to check for things like:
- Orthography:Do they use American or British spelling, or are the words misspelled?
- Grammar:Is there a correct use of semicolons, or does the grammar work everywhere?
- Gap:How are sections laid out on pages?
- Photos:Are the images relevant to the pages? Is the quality of the images high resolution or are they low resolution and just stock photography?
When e.g. When checking to see if a UK or European company is legit, make sure their GDPR policy is clearly displayed on their website. An organization that sells products should also have a detailed return and shipping policy to provide peace of mind for its customers.
Look at references and customer reviews.
Suppose you are a business development manager at a large manufacturing company and you receive a call from a foreign company owner who says:In factenthusiastic and interested in working with you.
They say, "I've got this great product that's doing well here and we're expanding overseas. We'd love to rent your warehouse to stock our merchandise." You say 'no problem' and ask for references from local companies they have worked with. Suddenly, the caller gets confused and can't give you anything concrete. Would you work with that organization?
It is always a good idea to ask a foreign company for at least three industry references. If they are legitimate and trustworthy, they should be able to provide contact names, email addresses, and phone numbers for business verification. If they can't, don't ignore it, it's a big red flag.
Depending on how thorough you want to be, you can arrange a video call with the reference companies. There's nothing more powerful than looking someone in the eye and honestly asking what they think (and making sure that person is part of a real company, too).
Customer reviews are another good way to test red flags. The number of fake business reviews is on the rise and the Federal Trade Commission is cracking down on more than700 companies in 2021 for deceptive practices.
Here are some tips for spotting fraudulent reviews:
- The claim is vague and does not show any useful benefits of the product.
- Bad English has been used.
- The same review has been listed multiple times for the same product.
- There are many positive reviews posted in a short time.
Genuine and credible reviews will typically be:
- Specific and detailed (with names/positions of the person who left the review)
- Unique to the product or service provided
- Featured on reputable sites likeTrustPilot, G2 Crowd, Capterra, among others
Run a business credit check
If you're unsure of a company's financial health or want to know if they have the funds or credit to cover your charges, it may be worth running a credit check. Creditsafe is one of the most popular of all systems and allows you to check large contracts and deals to make sure you stay out of trouble.
A business credit report can show you:
Check that the company name is registered, the company address, its business addresses and ownership details. When applicable, a business credit report will also show you the company's website and the industry code in which the company is located.
Each company's credit report will provide you with information about officers and shareholders, and you can then view individual officer reports showing current and past appointments, including appointment and resignation dates. You can also view credit reports for these companies, whether they are still in business or not. This deeper investigation will help you understand how these officials conduct business.
A company's credit score
In addition to verifying a business, a business credit report will also provide a business credit score. A company's credit score is an algorithmic equation (as in the case of Creditsafe) that determines the probability that a company will become insolvent in the next 12 months, where 0 is very likely and 100 is very unlikely. The higher the credit score, the more stable the company. Since many factors affect a business's credit score, a change in any one of these factors can affect the overall credit score. For example, if adverse payment behaviors (judgments) occur, this will be taken into account and the score will change.
When checking the company's credit scoreyou have a basic understanding of how well the business is doing in addition to checking out the business. The algorithm does all the hard work for you and provides a basic answer, but we always recommend taking a deeper look at a company's credit report to make a truly informed decision about a company.
Being able to see a group structure on a company's credit report is another benefit of running a credit check. You will then be able to verify not only the company you are considering doing business with, but also any company within your group structure. For example, the company you are dealing with may be a sister or daughter company of a larger operation.
The group structure aspect of a business credit report allows you to see all related businesses, including your parent/head office business, and check your business credit reports to get a bigger picture of how you are doing. going to that group and how stable they are.
If one company in a group structure has problems, it can have a ripple effect on the other companies in the group in question.
There are many ways to check if a business is legit, but if something still doesn't feel right, always trust your instincts. If you are not comfortable doing business with a company, don't do business with them. Fraud is a common and detrimental problem for SMBs, and the more vigilant business owners are, the more they can protect their business.
Always do your due diligence on potential customers and suppliers to ensure you are dealing with legitimate companies.
- Assess a Company's Financial Health with Big Data. ...
- Review a Businesses' Credit Score by Running a Credit Report. ...
- Ask for References. ...
- Check the Businesses' Financial Standings. ...
- Calculate the Company's Debt-to-Income Ratio. ...
- Investigate Regional Trade Risk.
How Credit Analysis Works. To judge a company's ability to pay its debt, banks, bond investors, and analysts conduct credit analysis on the company. Using financial ratios, cash flow analysis, trend analysis, and financial projections, an analyst can evaluate a firm's ability to pay its obligations.What are the three reasons a creditor may deny credit? ›
They do not meet the creditor's minimum income requirement; They have not been living at your address or working at your job for the required amount of time; They are too near their credit limits; and.What is the best site to get all 3 credit reports? ›
You have the right to request one free copy of your credit report each year from each of the three major consumer reporting companies (Equifax, Experian and TransUnion) by visiting AnnualCreditReport.com. You may also be able to view free reports more frequently online.Where can I find a company's credit rating? ›
On Bloomberg you can get to a company (equity) credit rating by entering the code CRPR which will give you the credit rating profile. An example is shown below. You will also find S&P Credit ratings on the Capital IQ platform.What are 5 key things are considered when determining credit worthiness? ›
The five Cs of credit are character, capacity, capital, collateral, and conditions.What are the 4 key components of credit analysis? ›
The “4 Cs” of credit—capacity, collateral, covenants, and character—provide a useful framework for evaluating credit risk. Credit analysis focuses on an issuer's ability to generate cash flow.How would you analyze the credit risk of a company? ›
Lenders can use a number of tools to help them assess the credit risks posed by individuals and companies. Chief among them are probability of default, loss given default, and exposure at default. The higher the risk, the more the borrower is likely to have to pay for a loan if they qualify for one at all.What are the 5 credit analysis? ›
Credit analysis is governed by the “5 Cs of credit:” character, capacity, condition, capital and collateral.What three things will creditors check before qualifying you for credit? ›
- Personal information, including any names associated with your credit, current and past addresses and date of birth.
- Current and past employers that have been listed on past credit applications.
Look for red flags, such as: Treated differently in person than on the phone or online. Discouraged from applying for credit. Encouraged or told to apply for a type of loan that has less favorable terms (for example, a higher interest rate)What are the 3 C's of credit? ›
Character, capital (or collateral), and capacity make up the three C's of credit. Credit history, sufficient finances for repayment, and collateral are all factors in establishing credit. A person's character is based on their ability to pay their bills on time, which includes their past payments.Who has the most accurate credit score? ›
The primary credit scoring models are FICO® and VantageScore®, and both are equally accurate. Although both are accurate, most lenders are looking at your FICO score when you apply for a loan. There's a lot to learn about credit scores and credit reports and having more than one credit score can get confusing.What website has the most accurate credit score? ›
Equifax. Equifax, one of the three credit bureaus, is one of the strongest sites overall, despite the monthly fee. It offers credit scores and reports from all three bureaus, educational resources, and identity protection.Which credit score matters most? ›
FICO® Scores☉ are used by 90% of top lenders, but even so, there's no single credit score or scoring system that's most important. In a very real way, the score that matters most is the one used by the lender willing to offer you the best lending terms.What are the four 4 C's of the credit analysis process? ›
Standards may differ from lender to lender, but there are four core components — the four C's — that lender will evaluate in determining whether they will make a loan: capacity, capital, collateral and credit.How do you conduct a credit assessment? ›
- Collect relevant details to extend credit. ...
- Check credit reports. ...
- Assess financial reports. ...
- Evaluate the debt-to-income ratio. ...
- Conduct credit investigation. ...
- Perform credit analysis.
Once you have registered with the company, you will be able to conduct an online search for the business for which you want a credit report or provide this information over the phone directly to the credit agency.