P&A Receivables European Credit Forum alerts channel to growing threat of long-firm and ‘Phoenix’ fraud scams
P&A Receivables, the leading credit management and debt collection service provider to the IT industry, has highlighted the growing threat that long- and short-firm scams pose to the channel and urged resellers, distributors and vendors to be on high alert when dealing with new customers, especially when potentially lucrative opportunities seem to be in the offing.
Senior credit and finance managers from major technology companies debated the issue at the company’s recent EMEA European Credit Forum (ECF) in Amsterdam, with many reporting an alarming rise in both the number of scams being attempted and the scale and ambition of the frauds being attempted.
Earlier this year, one vendor reported that it had become the victim of an elaborate long-firm fraud that resulted in a very significant amount of equipment being supplied to a seemingly legitimate firm. Having established a healthy payment track record over a period of several months and hosting visits by suppliers at its own offices, the company eventually placed a large order and, having taken delivery of the kit, promptly disappeared.
Delegates also reported that there had been an increase in short-firm or so-called ‘Phoenix’ frauds, which seek to exploit suppliers that are increasingly desperate to win new business and do not carry out proper risk assessments, obtain information on the company and its directors , or make proper credit checks and take references.
Laurie Beagle, Divisional Director of P&A, says that the increase in frauds of this kind is a genuine cause for concern. “Everyone in the channel needs to become more aware of this issue and to guard against it because, in the end, it will have an impact on us all. Losses to this kind of scam come straight off the bottom line and that will eventually lead to vendors and distributors tightening up their terms and performing elongated checks before they will authorise new or additional credit. If we don’t stamp them out, these kinds of frauds will take money out of the channel and hamper recovery.”
The downturn has been a major factor in the growth of company heists, he adds. “With hardware sales falling off a cliff in some sectors last year, many suppliers were becoming increasingly desperate to make sales. As a result they were more likely to skip the usual checks they would make before authorising business. The criminals have seen this as a real opportunity and they have grabbed it with both hands. All channel companies need to make sure that the follow the correct processes before they do business with any new customer or they extend credit in any significant or dramatic way.”
One of the reasons that the number of scams has increased, says Beagle, is that they have been working. “Too many companies have been leaving themselves open to exploitation. We often find, when we look closely at a supplier, that their authorisation processes are weak. As a result, they are extremely vulnerable to this kind of fraud. They need to tighten up their act, close the gaps in their defences.”
Delegates at P&A Receivables’ ECF meeting were given a full presentation on the current levels of fraud being carried out in the EMEA region, by Darren Hodder, Managing Director of Fraud Consulting. He told them that, according to National Fraud Authority estimates, losses in the IT, Media and Technology sector were £948 million in 2008. Hodder believes that this figure will have risen substantially over the past 18 months and could potentially be as much as £1.5 billion in 2010. “One thing we can be pretty sure of is that it won’t have gone down. This is an issue for everyone in the public and private sector and IT is one of the main industries now being targeted by fraudsters. As well as company frauds, card-not-present (CNP) frauds continue to be a problem. Personal and corporate identity frauds or full-scale ‘hijacks’ also continue to grow at an alarming rate, with small firms, as well as larger organisations, now being targeted by criminals.”
The P&A EMEA Credit Forum (ECF) brings together senior credit and financial managers from major ICT vendors, distributors and service providers from all over Europe, three times a year, for two days of presentations, workshops and discussions. The group shares ideas and experiences around current issues and challenges facing their organisations and their industry in general.
The next meeting will take place on 16 and 17 September 2010 in Dublin. Any companies interested in participating should contact Laurie Beagle on +44 (0)114 278 8868 or email firstname.lastname@example.org.