Short Firm Fraud Targets Small Business

Short Firm Fraud Targets Small Business
Kitmondo 01 May 2014

If long firm fraud is the sophisticated approach for people willing to put in the work, then short firm fraud is fraud for those seeking instant gratification.

Long firm fraudsters spend time impersonating a business and building good credit before selecting their moment to strike. The short firm versions simply go for the jugular straight away. This is ‘firm fraud-lite’, if you like. They quickly set up a business and immediately place an order which a supplier is happy to fulfill. They then mount a quick fire sale before vanishing into thin air.

Because the fraud works on a much shorter timescale, there is little or no chance to build a relationship with the target and therefore the payoff is inevitably significantly smaller. However, it’s an easier scam to organize and to get away with as suppliers are less likely to perform rigorous checks over small orders.

It is also possible to give your new company the appearance of a history by assuming the identity of an existing firm. This could be a dormant company that has a history, but is currently inactive, or by pretending to be a better known existing company. This can be somewhat challenging as the supplier may have existing relationship with that firm, however, if they can make the illusion real enough, the criminals might just get away with it.

Small Businesses are a Soft Target

If you’re a small business or reseller then it’s more likely that you will encounter short firm fraud rather than long firm fraud. Con men will reason that you’re a small trader or start up looking for new business and therefore less likely to take the kind of precautions that larger or more established companies might take.

Undertake a Process of Due Diligence

So, before you take any orders, no matter how tempting, undertake a process of due diligence including credit checks on your potential customer or client:

    1.    Check their identities. Find out if they have been declared bankrupt in the past or have been excluded from running a business. You can look at the websites of Companies House and the Insolvency Services for these.

    2.    Run a basic internet search on their name; this could reveal past problems, indiscretions or criminal activity. Get trading references and check the identities of their referees. It’s not unknown for criminals to have referees with esteemed titles such as “Sir” or “Doctor”.

    3.    Check their accounts thoroughly and don’t take anything you find at Companies House at face value. Check whether or not their accounts are believable given the time they’ve been in business. If you’re unsure, have a qualified professional such as an accountant or lawyer check on your behalf.

    4.    If possible, visit them in person. If their trading offices are in another country, find out why, and, if they’re reluctant to meet you, then proceed carefully.

    5.    Finally, look at how easy it is to contact the company. If they have a web-mail address or only give mobile numbers, then proceed with extreme caution. It’s clearly crucial that you’re able to contact the company easily both before and after any transaction.

Short firm fraud relies on a quick hit and run approach. The fraudsters are relying on you not being as cautious in dealing with them as you might be if they made a larger order. However, these are just the sort of deals that, as a small trader, you should be most wary of. So, do your research and only do business with people if you’re certain of who they are and where you can find them.

Image Credit: Eugene Zemlyanskiy