When you think of credit fraud, you typically think of the toll that ID theft and phishing scams have on personal financial accounts, but fraud takes a significant toll on businesses — by other businesses. Here’s what credit and financial professionals need to know about B2B credit fraud.
Is B2B credit fraud really a problem?
According to credit reporting agency Experian, B2B fraud costs U.S. businesses more than $50 million per year, and most likely, that’s a conservative estimate. In addition, the 2019 AFP Payments Fraud and Control Survey Report, sponsored by financial services company J.P. Morgan, found that:
- 80% of organizations experienced Business Email Compromise (BEC); and 54% of organizations reported financial losses as a result of BEC.
- 70% of organizations experienced check fraud.
- 78% of companies experienced attempted or actual B2B payments fraud in 2018.
- 64% of attempted or actual payments fraud were due to actions of an individual outside the organization.
Yes, B2B credit fraud is a problem. Most financial experts believe the increasing incidence of B2B fraud is the result of paper-based and manual processes used to capture, approve, and pay invoices. Paper checks are much more susceptible to both internal and external B2B payments fraud. In lieu of these statistics, it’s important that companies take measures to protect payments, including educating employees on current payments fraud practices and using the necessary tools and methods to safeguard against these fraud threats.
Types of B2B credit fraud
There are many different types of B2B credit fraud that companies need to be on the lookout for. Here are a few of the more common ones:
- Payment fraud is a transaction where a fraudulent business deprives another business of funds, property, or sensitive information. It can be unauthorized transactions, stolen merchandise, false requests for a refund, or returned or bounced checks. The most common type is check fraud, with wire transfers and credit card fraud close behind.
- Business Email Compromise (BEC) fraud is when a hacker gains access to a business email account in order to defraud its employees and customers. Often the hacker will try to trick someone into wiring money to their bank account.
- Business identity theft is when a malicious entity obtains a business address or EIN and then starts operating as if they are the business — building their reputation and credit history. The fraudulent business can then carry out financial and other activities under the guise of the legitimate business.
Keep your business safe
B2B fraud is only going to get worse in the years to come and it’s imperative for businesses to learn as much as they can and always be vigilant against its many forms. Here are some tips and best practices for keeping your business safe from the threat of B2B fraud:
- Closely monitor incoming and outgoing payments; check fraud can occur both internally and externally.
- When doing business with a new company, look at how long it has existed. Young companies tend to come with more risk.
- Watch for fake credit references.
- A company with no accounts receivable may be a shell company.
- Pull a company’s business credit report.
- Use fraud detection tools such as Experian’s National Fraud Database, which allows you to compare credit applications to current fraud records.
- Take advantage of MSCCM’s Portfolio Alerts, which helps detect early signs of trouble within your account portfolio.
- Review your banking and credit accounts on a regular basis to detect fraudulent transactions early.
Credit and financial professionals today must always be on the lookout for fraudulent activity within their company, as well as within companies they do business with. B2B fraud activity will continue to evolve and industry suppliers need to stay on top of new threats and educate their employees about what to watch for. Partnering with experts who can help you identify fraudulent activities and companies will help protect your corporate assets and the reputation of your business.