Combating Corporate Id Theft and Fraud and Protection of Bad Debts

There has been a great deal of media coverage about personal ID theft; however, corporate ID theft and fraud are also serious and growing problems. ID theft is costing UK business millions of pounds each year, sometimes with serious consequences and preventing it needs to be a priority, especially in the current economic environment.

Increasingly, corporate fraud is happening to successful companies, rather than those who are struggling. After all, why would a fraudster target a company with losses?  Larger companies need to be particularly aware that because they often have complex accounting systems, fraudulent activities can be more easily hidden. 

Company Identity Fraud

It is not difficult for a fraudster to change a registered office or trading address of a company; Companies House takes all applications at face value.  If this happens, applications for credit can be made and goods ordered in your name, and, before you know it, your company has a bad credit rating or a judgment against it. Meanwhile, the fraudster has disappeared with your goods.

Here is a list of things you can do to protect yourself:

• Even when you can legally do so, never throw out unshredded company documentation, bank statements or company credit card details, especially anything with signatures.
• File all documents at Companies House via the Proof system.
• Invest in a monitoring service or ask us to do this for you, so that if a change is made at Companies House, we can alert you.

Phoenix Fraud

This is when a company is set up, trades for a time and is then wound up by the directors, usually with large debts. They then create another company, (often with a similar name) and the creditors of the original company are left with the losses. In this way, the directors have no responsibility for the debts.

Usually this comes to light when the creditors try to get their money back through a debt recovery service and there is little they can do. Be very wary of business name changes.

Check, Check and Double Check

If you are asked to provide a new customer with a large order, it is easy to jump for joy and not think about getting paid. 

For your own sake, check the company and, particularly, check the directors. If you find a long list of dissolved companies, ask why.  To improve your chances of getting paid, if this is a newly-formed company or an extra-large contract for a longer-standing customer, you can ask for the directors to give a Personal Guarantee.  If the company then goes bust, you at least have the option of pursuing the directors for personal payment.

Checklist

1. Get a company search on the directors of the company.
2. Get a director’s search for a history of other directorships.
3. Ask a representative to visit your customer and check that it is where it says it is.
4. If the order is not from a director, ask for verification that the person placing the order has the authority to do so.
5. Check references; make sure they are independent and genuine.
6. Obtain bank references.
7. Monitor your own company for changes at Companies House.
8. Get automated company alerts on your customer companies with high risk accounts.
9. Keep a record of all correspondence with your customers.
10. Have a monthly credit control system. Remember the older the debt, the harder it is to collect.
11. If you supply goods as a business, make sure that you have a ‘Retention of Title’ clause in your Terms and Conditions.

We cannot guarantee that, by taking the above precautions, you will avoid having bad debts or that your company will not be a victim of fraud. But, at least if you build them into your company’s working policies, you are less likely to be a target.

To discuss any of the above issues please contact Sarah Townsend of Raworths Debt Collection Service. Sarah Townsend is Debt Collection Manager at Raworths, to contact Sarah, telephone 01423 566666 or by email sarah.townsend@raworths.co.uk.