Did you know the cost of fraud is on the rise? Specifically, it has risen by19.8% since 2019, according to a survey from Lexis Nexis. Take a moment to think about that because every year fraudsters are becoming more sophisticated in how they target businesses.
PwC’s 2022 Global Economic Crime and Fraud surveyhighlighted platform fraud as the most damaging crime, accounting for three-quarters of all reported cases.If that wasn’t bad enough, PwC estimates that every $1 lost to fraud costs US and Canadian businesses an average of $3.75 and $3.19, respectively. These figures should be a wake-up call for businesses to be more proactive about doing due diligence on businesses, particularly when working with foreign companies.
Working with foreign companies may seem exciting and present growth opportunities for your business, but you shouldn’t just say ‘yes’ to working with them without vetting them. What if they are on a sanctions list? What if they don’t even exist and you’ve fallen prey to a scam? We’ll help you navigate this process with tips on what to look out for when working with foreign companies.
Chapter 1 Check the company's website
Your first point of call is the company website. You want to make sure the website exists and goes to the right place.
Look up the address and phone number
Start by looking at the company’s website to see if there’s a phone number and business address listed. Google Maps will quickly tell you if the company has an actual address. If an address doesn’t show up on Google, call the number to verify that there’s someone from the company available to speak. Either a company representative will answer or the number won’t be in service. Both scenarios are useful for making sure the company is legitimate.
Still not convinced the company is legitimate? An extra step is to search for the same business address across different cities or localities. If the same details show up, then that’s a red flag.
Make sure the URL is secure and goes to the right place
Pay attention to the website’s URL and make sure it’s secure with https:// at the beginning of the address. While this isn’t a 100% guarantee of detecting scammers, it does show that the site owner is using a protected process to transfer data.
A pro tip is to verify the URL using Google’s Safe Browsing Transparency Report. The tool is excellent for revealing fake websites and providing data on any suspicious content.Or you can check the domain name with WHOIS. This site is a must-have in your fraud-fighting toolkit because it shows the details of who owns a domain address, how long the website has been running, contact names and business addresses.
Read through every page on the site
Don’t just go to the home page and then leave. Go through every page to make sure it’s not just a shell of a site built to deceive people. Go to the home page to see if it describes the business mission and products/services it offers. Go to the About page to learn more about their executive team (cross-reference them on LinkedIn) and to see if they have any job postings listed. The absence of these could be a red flag that the company doesn’t exist. Don’t stop there. Go to their Product pages to see what specific products/services they offer.
It’s worth looking over as many pages on the website as you can to check things like:
- Spelling:Are they using US or UK spelling or are words spelled incorrectly?
- Grammar:Is there correct use of periods and commas or does the grammar seem all over the place?
- Spacing:How are paragraphs presented on the pages?
- Images:Are the pictures relevant to the pages? Is the quality of the images high-resolution or are they low-resolution and just stock photography?
Chapter 1 Check out their T&Cs and privacy policy
A legitimate company will have a Terms & Conditions policy along with other policies for protecting customer data and offering transparency. This includes a privacy policy that details data protection standards and processing. These should be displayed clearly on their website.
For example, when verifying if a European or UK business is legitimate, make sure their GDPR policy is clearly shown on their website. An organization selling products should also have a detailed return and shipping policy to give their customers peace of mind.
Chapter 1 Look at customer references and reviews
Let’s say you’re a business development manager at a big manufacturing company and you get a call from a foreign company owner that soundsreallyenthusiastic and is interested in working with you.
They say, “I’ve got this great product that’s doing well over here and we’re expanding overseas. We’d love to hire out your warehouse to store our goods.” You say ‘no problem’ and ask for references of local companies they’ve worked with. Suddenly, the caller gets skittish and can’t provide you with anything concrete.Would you work with that organization?
It's always a good idea to ask a foreign company for at least three industry references. If they’re legitimate and trustworthy, they should be able to provide contact names, email addresses and phone numbers for company verification.If they can’t, don’t just ignore that – it’s a major red flag.
Depending on how thorough you want to be, you could arrange a video call with the reference companies. There’s nothing more powerful than looking someone in the eye and asking them honestly what they think (and making sure that person is part of a real company too).
Customer reviews are another great way to test for red flags. The number of fake company reviews is on the rise, with the Federal Trade Commission cracking down on over700 businesses in 2021 for deceptive practices.
Here are some tips for spotting fraudulent reviews:
- The testimonial is vague and doesn’t show any useful benefits of the product.
- Poor English has been used.
- The same review has been listed multiple times for the same product.
- There are lots of positive reviews published in a short amount of time.
Real, trustworthy reviews will typically be:
- Specific and detailed(with the names/job titles of the person who left the review)
- Unique to the product or service delivered
- Appear on accredited sites like TrustPilot, G2 Crowd, Capterra, among others
Chapter 1 Run a company credit check
If you are unsure as to the financial health of a business or want to know if they have the funds or credit to meet your fees then it may be worth running a credit check. Creditsafe is amongst the most popular of all systems and will allow you to check those big contracts and agreements to make sure you do not walk into any trouble.
A company credit report can show you:
Company Verification
Check the company name is registered, the company address, their trading addresses and ownership information. Where applicable, a company credit report will also show you the company website and the industry code that the company lies within.
Officer Details
Every company credit report will give you officer and shareholder details, you are then able to view individual officer reports that will display current and previous appointments, including appointment and resignation dates. You can also view those companies’ credit reports whether they are still trading or not. This deeper research helps you understand how these officers are operating their businesses.
A Company Credit Score
Going beyond verifying a business, a company credit report will also provide a company credit score. A company credit score is an algorithm equation (which in Creditsafe’s case) determines the likelihood of a company becoming insolvent in the next 12 months, with 0 being very likely and 100 being very unlikely. The higher the credit score, the more stable the company. As many factors influence a company’s credit score, a change to any of these factors can influence the overall credit score. For example, if adverse payment behaviour is filed (court judgments) then this will be taken into consideration and would change the score.
By checking the company credit scoreyou have a basic understanding of how well the company is performing on top of verifying the business. The algorithm does all the hard work for you and provides a baseline answer, but we always recommend looking deeper into a company credit report to make a truly informed decision about a business.
Group Structure
Being able to view a group structure on a company credit report is another benefit of running a credit check. You will then be able to verify not only the business you are thinking to deal with but also any companies within its group structure. For example, the company you are dealing with could be a sister or child company to a bigger operation.
The group structure aspect of a company credit report allows you to see all related companies including the parent/head office company and check their company credit reports for the bigger picture of how that group is performing and how stable they are.
If one company in a group structure runs into trouble, it could have a knock-on effect on the other companies within that group.
There are many ways to check if a company is legitimate, but if something still doesn’t feel right always trust your instincts. If you don’t feel comfortable dealing with a business, don’t deal with them. Fraud is a common and damaging problem for SMEs and the more vigilant business owners are the more they can protect their company.
Always carry out your due diligence on potential customers and suppliers to ensure you are dealing with legitimate businesses.
