Business Credit Fraud

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Business Credit Fraud

In today’s business world, offering credit to clients has become a necessity if your business hopes to survive in the increasingly competitive business world. Credit allows business to make additional sales, which results in additional revenue providing a competitive advantage for businesses that do not offer business credit. Clients are also able to make larger purchases than they would otherwise be able to. These features promote customer loyalty and can guarantee repeat business.

Unfortunately, there is a distinct disadvantage with providing business credit in the form of credit fraud. This involves businesses purposefully providing false information in exchange for financial gain in the form of merchandise. Business credit fraud is unfortunately quite common, and has been the undoing of many unfortunate businesses. Let’s take a look at some common credit fraud schemes as well as some red flags to keep an eye out for.

One common credit fraud technique involves a business scheming to gain large quantities of valuable merchandise with the intent of paying for little or none of it. A business will first start building consumer trust by purchasing a few small items on credit which are all promptly paid for. Eventually the consumer will increase the size of these orders, while slowly reducing their payments amount, until payments cease completely. Another common credit scheme involves a business purchasing merchandise to be paid on delivery. The fraudster then pays with a fraudulent check or money order and quickly relocates to repeat the fraud to another business.

Although these schemes are quite common, there are a few red flags you should keep an eye out for in order to protect your business from such losses. Be very careful with larger orders, especially high value merchandise that are easily liquid or can be quickly sold. Too many small businesses overlook these orders due to the excitement of new profits. Be very wary of orders that come from places around the world where fraud is highly prevalent. Some high-risk areas include but are not limited to Eastern Europe, Africa and Southeast Asia. Rushed order should also be looked at with some skepticism since fraudsters tend to use this method fairly often when implementing their fraud schemes.

Conduct background checks and credit references on all businesses before providing credit on a transaction. Fraudulent business will purposefully make it difficult to obtain any info on their credit background. Stay away from any business that fails to provide any verifiable references or is unaffiliated with any credit bureaus. If you can, try to conduct location checks to ensure an orders shipping address matches the address of the business it’s going to. If possible, try to research the historical orders of a potential client to see if the size of their order matches what they are historically used to. If an order is unusually large, it would be wise to take precaution.

Shelf Corporation

How Much Should They Cost? What Is The Industry Standard?

Aged corporations with no transaction history are priced using this general industry formula:


Cost of Filing + Cost of Maintenance + Years x ($1000)

Example: Bob finds a Nevada aged corporation that is two years old. The aged corporations cost the incorporator $750 to form and to maintain the corporation. How much is it worth?


PRICE = Cost of Corporation + Cost of Maintenance + Years Aged x ($1000)
PRICE = $750 + 2 x ($1000)
PRICE = $2750

$2,750 is the market rate for a two year old Nevada aged corporation. As an alternative, Wyoming aged corporations cost less because their formation and maintenance expenses are substantially less than in Nevada. They are just as good in terms of asset protection and financial privacy, but without the marketing hype. The same corporation formed in Wyoming may only cost $2210.