The Kray Twins – Dead But Not Forgotten?
Credit managers throughout the United Kingdom have reported that there has been an increase in “long firm” frauds in the last few months. This type of
fraud was created by the Kray twins in the East End of London in the early 1960s and was the mainstay of their criminal empire. These types of frauds are generally run over a “long” period thus the first part of the name. The second part of the name comes from the Kray’s gang who were known as the “Firm”. A “long firm” fraud is where a fraudster sets up a business and pretends that they are a bona-fide trader who will pay accounts on demand. This induces manufacturers and wholesalers to supply goods on credit when in fact there is no intention to make payment. The fraudulent concern is normally a limited company that has been purchased online from formation agents. The company is registered with Companies House with the directors being bogus often lodging false accounts to show a couple of years of successful trading when in fact the company has only been trading a matter of weeks. In other cases sole trader or partnership businesses are used for the scam.
Any marketable commodity can be the subject of fraud although certain goods are preferred because they are not easily traceable. Toys, toiletries, wines & spirits, fancy goods, confectionery and building materials all have a quick turnover and can be disposed of easily. High value audio/visual products, computer products/components and peripherals printer cartridges, mobile phones, furniture and high-class merchandise including clothing, branded accessories and sports goods are often the subject of these frauds too. It is fairly apparent in a number of cases that the fraud has been executed with a specific shopping list in mind to cater for the demand from existing outlets.
The fraudsters visit Trade Shows throughout the UK and Europe with a view to opening accounts and obtaining goods on credit. Telephone sales have increased dramatically over the years due to constraints on all businesses to deliver quickly and move the business forward and fraudsters have taken full advantage of this. They also use the internet as it removes direct contact with the supplier and the traditional benefits of customer contact – i.e. speaking to an individual who sounds unprofessional, or who does not understand the product and price relationship. The size and type of premises they operate from will depend on the quantity and category of goods and services to be handled. With goods that turnover very quickly such as beer, wine, and spirits, all that is needed is enough room to unload. In most cases, regardless of the commodity, the goods do not stay on the premises very long. Premises where the good are to be delivered are generally rented on a short term basis. Extreme care should always be taken when dealing with businesses operating from accommodation addresses. It is widely known that accommodation addresses tend to provide cover or a base for a cross section of criminal activity, not just white collar crime. Long firm fraud is organised crime on a large scale and in most cases is drugs related and have been know to fund terrorist activities in the past.
How can you prevent being a victim in a long firm fraud?
- By putting a few simple measures in place businesses can reduce their chances of being the victim of a fraudster.
Check out the Customer
- Always treat newly-formed firms with suspicion
- Identify the directors/partners
- Obtain details of who trades with them
- How long have they been in business?
- How long have they traded from the present and past business addresses?
- Are the premises owned or leased.
- Are the premises occupied? Fraudsters often only occupy their business premises when they are expecting a delivery.
- Visit the premises or arrange for a local agent to visit them for you. Fraudsters deliberately target suppliers who are not local to the business to avoid such visits.
- Have the directors/partners been involved in any previous business? If so, obtain details of involvement, number of years traded, previous references, bankers premises etc.
- If the trader has been a long-established customer, beware of rapid change in personal and trading contacts. These may indicate the company has changed ownership.
- Consider the type and range of goods traded in.
- Cold calling on the new customer’s premises adds an extra safeguard. It will give you a feel for the customer. It also allows you to gain first hand knowledge – identify persons involved – confirm the main line of the business and the type, range and quality of goods held.
- Checks with the landlord of the premises and neighbouring businesses will confirm the length of occupancy.
- Are the premises large enough for the proposed business?
- Are the premises being used mainly as a delivery point?
- Visit references to authenticate background knowledge, previous trade and confirm reliability.
Protect Your Financial Position
- Ask for part payment in advance
- Make part deliveries
- Ask for personal guarantees
- Be wary of supplying additional orders if previous payment not received
- If your salesperson / business representative has personally attended at the premises and is of the opinion that the proprietor or business appears suspect, take advice and supply only on a cash basis, if at all!
- Ensure the sales and credit control functions liaise regularly
Fraudsters are devious, cunning and plausible. Don’t believe all you are told without checking first.
By putting a few simple measures in place, you can reduce the opportunities for the fraudster to operate
It’s a fact that you will encounter almost everyday in any form of Credit Control a number of customers who will try an excuse to buy some time and hold on to their cash.
A company has a legal obligation to meet its debts as they fall due. If they cannot they are technically trading whilst insolvent.
- The cheque is in the post – The oldest and worse excuse in the book! Ask them to send you a copy of the cheque if possible, then ask them to confirm the date it was processed or sent, the exact amount and cheque number, what address the cheque was sent to and was it sent First Class. If the debtor is telling the truth they will generally be willing to accept and answer your questions. If they are not, the excuse will probably not be used again because of the professionalism and through nature of your questioning.
- We have not received your invoice or statement – This is a very common delaying tactic. Firstly have the debtor confirm the address that you have to send invoices to for that client to check it is correct. Have the debtor confirm to you that this is the only reason for withholding payment, then use a “closed” question like “If I email you a copy of the invoice or statement will this account be paid today?” If the debtor is not prepared to make an agreement once the invoices or statements are received then this is often a sign that the excuse is a simple delaying tactic and more probing questioning is needed.
- The debtor is never available – As Debt Collectors this is something we experience on a daily basis. Though it is unusual for a customer never to be there, its often used as an excuse and delay tactic. To counter this, ask to speak to an alternative decision maker within the business. Call at different times of the day, even before 9am and after 5pm, ask for mobile numbers for the debtor or directors of the company or escalate or complaint to higher management. If this doesn’t work fax and post a “Letter Before Action”, to the Director’s of the company giving them 7 days to pay, put a stop on the customers account if necessary until payment is received.
- The Accounts Department are only open 9am to 12pm one day a week – if it sounds implausible then it often is, look and think about the size of the company, are they large enough to warrant having an accounts department? Are they a really large organisation that would need a large accounts department, that would be open during normal office hours? Be prepared to challenge the situation and ask yourself of the importance of this person in the payment process. A company Director or partner in the business should be perfectly able to forward payment and tie up loose ends before the Accounts Department finally make an appearance in their office.
- The Goods were Damaged not received or arrived late – Your debtor may have a legitimate claim here, but not however if the delivery was over a few weeks ago, question why they have not contacted you to discuss and sort out the problem. Most deliveries can be tracked online so check and verify the information the debtor is supplying you with, whilst you are talking to them. Ensure you investigate the nature of the debtors claim but request payment for the balance of the account. Act quickly to resolve any disputes so any invoices can be cleared as soon as possible.
- I am changing my bank account – Ask for proof of the situation and ask if the debtors new bank can call you to clarify the situation. Changing bank accounts is a very quick and easy process these days even for a business so this should not be holding up payment for a great amount of time a few days at the most. Point out to the debtor that their stance is unacceptable and that the costs of supporting the debtors non payment (I.E Interest Charges & Late Payment Fees) could be passed onto them if full and immediate settlement is not made. Push for payment either electronically or by way of a personal directors cheque.
- I’m too busy to pay you – If the debtor states this to you and if they genuinely are busy they then must be making plenty of money to pay your outstanding invoice. Use probing questions to ask how busy they are, when they are going to be paid and when you can expect your cash. Highlight to the debtor that in today’s modern environment everyone has access to online banking and it only takes a matter of seconds to process a payment to you. Press the debtor for immediate payment, if that cannot be accommodated arrange a date within the next day or so and follow this up with the debtor if you are not paid on the agreed date.
- I have not been paid by my clients yet – Debtors feel that they are entitled to withhold payment until such time as their clients make payment to them. Clearly this is not the case and a strong line needs to be taken. Ask the name and address of their debtor and the expected date of payment. Your immediate reaction maybe to feel sorry for the debtor, you need to remind them that you are now in a similar position due to their non payment, re confirm your payment terms and ask for payment immediately. As a company they have an obligation to pay on time. If the person you normally speak to with regards payment of accounts doesn’t seem bothered ask to speak to the manager or the director of the company to highlight the issues you have discussed
- I have a cashflow problem – The cash shortage is their problem, you have carried out work in good faith and expect to be paid for the work you have completed. Ask the debtor if they would be willing to pay by instalments or even post dated cheques given the severity of the situation. Be sure to monitor any instalment plan that can be agreed to ensure that the correct amount and date of the payments coming across is being adhered to, call the debtor and find out the situation if any instalment is defaulted on.
- The signatory is deceased – Not much you can do immediately with a case like this. There is often a good deal of paperwork to be completed prior to any funds being released from the deceased person’s estate. Verification of the deceased’s position however is essential. A sympathetic and polite approach is required, find out who is dealing with the deceased’s affairs, their contact details, and when they expect payment to be received. Always verify the details given, sometimes accounts can be opened in the deceased’s name by a fraudster to try and obtain goods.
This is something I am always banging about in my line of work. Many of your customers will prefer to do business on credit and most will likely insist that you extend credit terms. Under the best of circumstances, it’s unlikely that they’ll all pay on time.
By establishing and enforcing smart credit policies your business will run more smoothly and maintain a sufficient cash flow.
Follow the 5 simple steps below and you will find life easier in the credit control department
Further explanations of the credit control rules:
Step 1 – Although no policy is foolproof, write a set of credit terms based on what works for your business. If you are diligent and thorough the policy should serve you well.
Step 2 – Your customer must make it clear what their legal entity is. There is a big difference to giving credit to a sole trader to an Ltd company.
Step 3 – don’t just read the trade references. Always check the trade references are legit. What is the point of asking for trade references if you don’t check them? Also beware of customers who won’t complete a Credit Application Form. Are they hiding something?
Step 4 – by adding a Personal Guarantee you are giving your business additional protection should the customer’s business go under.
Step 5 – Has your customer got a good history of paying on time? You will soon know by checking their transactions in the last 6 months.
Always monitor your customers and credit terms on an ongoing basis. Instinct is something I believe in. If a customer is new and you have a bad feeling they might leave you with bad debt, only accept cash or Cash on Delivery. Never under estimate your gut feeling. A customer is only a customer who pays. If they don’t pay you will be left with more than a headache