Credit Fraud
By Michael C. Dennis, MBA, CBF
 

No company is immune to credit fraud and no credit manager can prevent it. Criminal activity designed to separate creditors from their products has become more sophisticated, and unfortunately more commonplace. Credit losses can be reduced through awareness, constant vigilance, education, thorough credit checking, and tight credit granting policies.

Another way to protect your company against credit fraud is to be active in one or more industry credit groups. Membership in these groups makes it easier to share and compare payment history and credit references on customers and applicants - provided that each member make an independent, unilateral judgment about whether or not to extend credit to a customer or potential customer.

Statistics on credit fraud are difficult to obtain for two reasons:

1. It is often difficult to differentiate between a legitimate business insolvency, and a loss caused by a deliberate fraud committed by the customer

2. There is a natural reluctance to report credit fraud due to embarrassment about the fact that the fraud was allowed to take place

3. There is also an issue that reporting suspected fraud to senior management might result in the credit manager losing their job.

The sad fact is that some insolvencies result from intentional acts. The vast majority of bad debt losses result from poor business decisions and mismanagement. The only difference between fraud and losses caused by simple mismanagement involves the intent of the business owner or manager to commit fraud.

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