As B2B companies do more business online, fraud prevention and detection are becoming more critical than ever. It may be that your business has recently begun offering online credit applications, or perhaps you have a well-established eCommerce site but aren’t prepared for the types of fraud that are prevalent in new markets you’re entering. Either way, the digital capabilities that bring so many advantages may also make your business more vulnerable to certain types of fraud.
A national B2B retailer that recently began working with BlueTarp faced this problem head-on. When BlueTarp automated the retailer’s approvals for online and offline applications, it saw that the inside sales team was exposed to more fraud, due to the lack of in-person interaction with prospective customers.
BlueTarp tailored its credit model for this set of prospects to eliminate those with a high propensity for fraud. In the first three months, the retailer achieved a 50% reduction in fraud. Nearly half of that reduction came from declining suspicious customers immediately, and the rest was achieved by flagging customers before any products were shipped to them.
Add fraud indicators to your automated credit decisioning
This retailer isn’t alone in battling fraud. According to a recent survey, 87% of large companies (those with revenues of more than $1 billion) and 69% of smaller companies lost money due to fraud in 2018. B2B fraud can take many forms, including account takeovers, business identity theft and even shell companies set up for the sole purpose of committing fraud.
B2B businesses with online applications and automated credit decisioning should strongly consider adding fraud indicators to their credit decision engines. These indicators can take the form of home-grown algorithms, external software or a combination of the two. Many providers partner with businesses like BlueTarp to install this type of technology, which can give the green light to trustworthy businesses and flag potentially fraudulent accounts.
Watch out for these 7 red flags that might reveal fraud
Different businesses are exposed to different types of fraud, and your fraud indicators should take into account the unique factors of your industry. That said, there are some common red flags your automated system should be programmed to watch out for. For example:
- An application comes from an unusual or high-risk zip code
- A shipping address doesn’t match the company’s office location
- A new customer’s first order is for high-risk products
- A company doesn’t have a significant credit history
- A company’s financial statements include mistakes
- A company’s ownership has undergone suspicious changes
- A company claims sizable revenue but doesn’t show up in commercial credit bureau reports
If your automated system catches one or more of these red flags in an applicant or customer, it can kick the application out for manual review. Then your credit professionals can investigate the suspicious elements and determine whether they’re aberrations or indicators of fraud.
Reducing overall risk exposure to your business
The initial application isn’t the only point of contact at which your business should be alerted to the possibility of fraud; sometimes fraudulent activity doesn’t become apparent for a while. For example, say a new customer keeps exceeding its credit limit. This could be a great new customer for your company, or it could be someone trying to pull one over on you. An automated credit system can flag this customer for review before you extend additional credit.
Also keep in mind that fraud prevention is just one piece of a larger risk-reduction strategy. For example, for the retailer mentioned above, BlueTarp also helped reduce risk exposure through its collections approach. With BlueTarp’s consistent collection efforts, which included automated due date reminders, the retailer reduced DSO by 33%, and delinquencies by 46%.
Automating customer interactions can be a powerful step in the fight against fraud. On the one hand, electronic applications and payments introduce new opportunities for fraud, as potential scammers don’t have to face the scrutiny that comes with human interaction. On the other hand, with automation comes a set of powerful new tools that can detect possible fraud attempts and dramatically mitigate the overall risk exposure to your business.