Avoiding Trade Credit Fraud

It can be difficult to identify a potential fraud but there are some warning signs to look out for that can assist in avoiding and certainly reducing the negative impact this can have on a business. 

Losses due to fraud are not generally covered by Credit Insurance policies meaning your Insurer is not liable for this loss. However, there are some exceptional cases where we know underwriters have accepted liability, so having a policy may have added benefits!

The TL Dallas Group of companies and the insurers we place cover with are seeing significant increases in the number of fraud overdues or claims being reported by clients. In particular, ‘assumed identity’ fraud cases – this is when a third party assumes the identity of well-established creditworthy businesses. 

CEO fraud is the impersonation of a company’s CEO or high-ranking officer to try and trick an employee into transferring money.  Unfortunately, as it is subsequently discovered, these payments have gone to the fraudsters account.  

 

Currently, the main sectors affected are Food & Drink, IT and Construction. However, all sectors are being targeted.

Whilst we are concentrating in this article on trade credit insurance and fraud we do have other solutions for Cyber Liability and Financial Crime risks – these policies can cover some of the areas highlighted and in addition cyber attacks on your IT systems and the liability that may arise if you inadvertently pass on viruses, ransomware and the like to third parties.

Please contact Mike Martin or Matt Smith on 01274 465500 or email mike.martin@tldallas.com or matt.smith@tldallas.com. There are also a number of articles on our website that may be of interest and you can access them here.

 

Some points to be wary of include: –

FINANCIAL STATEMENTS

  • Confirm the issued share capital stated in the Company’s accounts are consistent with the annual returns 
  • Be wary of a Company that submits accounts shortly after its financial year end or a dormant company suddenly becoming active 
  • Be wary of Companies filing above and beyond its filing requirements. Remember a ‘small company’ is required to submit abbreviated accounts to Companies House and ‘micro-entities’ are required to submit simpler accounts that meet minimum statutory requirements 
  • Compare accounts to other Companies within the same industry and be wary of Companies that have filed accounts which appear ‘too good to be true’. lf the accounts are audited, check if they’re registered using http://auditregister.org.uk/Forms/Default.aspx
  • Conflicting trade sectors – eg. Companies House states ‘wholesale of food + beverages’, but their website/status report states manufacture of metal 
  • Check the Directors do not have any association to failed companies or high volume of newly incorporated companies as this can be a warning sign
  • Frequent or sudden change/s in shareholders/directors or registered office can also be a warning sign 

NEW CUSTOMERS 

  • An unsolicited enquiry with a short/urgent delivery deadline – the potential new customer will be persistent and put you under pressure to open an account. There will be an unusually short period between first contact, order and delivery date. 
  • No landline telephone number provided – only a mobile number. Calls are usually not answered but go to voicemail and then your call is returned. If a landline is provided, when you call it’s been disconnected or just rings out.
  • Mirror imaging of existing genuine email and website addresses.  They are usually very similar to the company they are impersonating, however there will be subtle differences, i.e.:

Genuine company website address – www.tldallas.com 

Fraudulent company – www.t-l-dallas.com 

  • Professional looking website but with little functionality. The website will look OK, but basic and light on any details, landline telephone number etc. 
  • Be cautious with trade references and check them thoroughly – some recent cases we have seen have highlighted the trade references given were fraudulent and that associates, were also involved in the fraud.
  • The buyer is generally not interested in price with little or no negotiation – why would they be if they are not going to pay you! 
  • Buyer requests to collect goods themselves from your premises/warehouse, often in a private car or unmarked vehicle
  • Being asked to deliver goods to a different company or an unknown third party
  • Buyer changing delivery address at short notice – use Google Maps or Royal Mail postcode and address finder to verify addresses
  • Potential customer is overly ready to supply information – trade references and accounts/managements accounts are available without being asked 
  • Confirm that the supplied VAT and Bank Details are genuine 

EXISTING CUSTOMERS

Be wary of last minute requests, from your existing customers, if they do not follow their usual established trading pattern – check the details out further and call your usual contact and confirm changes in writing. 

 

Avoiding Trade Credit Fraud – download the pdf here.

 

Further useful information can be found here

 

If you would like to discuss Credit Insurance, please call 01274 465 522 or 01324 717 466. Alternatively, email your details to Credit@tldallas.com and a member of the team will be in touch.

Directors & Officers Insurance: A Business Necessity

There has never been a more important time to make sure that those senior individuals, either running or representing their organisation, are fully protected against claims made against them for the mismanagement of an organisation.

Whilst it may well be a very satisfying moment for new Directors or Trustees to join the Board, they are also obliged to accept new and potentially onerous responsibilities. If a Director (or trustee) is believed to have breached their responsibilities or duties by any one of a number of internal or external stakeholders, it can have significant consequences. The judicial system is easily accessible and even if an action doesn’t reach the courthouse, Directors can find themselves seriously out of pocket.

Those with responsibility can find their personal assets at risk – including their own home or savings – but there can also be severe reputational damage. Given the new legislation around General Data Protection Regulations (due in 2018), responsibilities will continue to increase. Directors need to remember that if they are fined or have costs awarded against them, they cannot recharge this to the business and it becomes a personal liability.

Directors and Officers (D&O) policies have been around for many years and the number of organisations that purchase cover has increased significantly over the last few years. However, not all organisations purchase cover and continue to ignore the potential risks. Given that the cost of D&O has dropped significantly over the last few years, it is harder to justify to a Board why cover hasn’t been purchased.

Employment claims are on the increase, particularly with employment legislation becoming more complex and changes to the rules around employment tribunal costs. Alongside this, breaches of Health & Safety legislation can also have serious repercussions on a Director who may just be acting on third party advice, despite their ultimate responsibility.

 

Potential claims against Directors can come from a number of areas under the general heading of “mismanagement of the business”.

Regulatory investigations are also becoming more common and with the impending introduction of the General Data Protection Regulation in 2018, Directors need to be absolutely certain they are protected by a robust D&O policy with a dependable insurer.

D&O insurance is designed to protect Senior Executives (or those acting in that role), from the financial implications of a legal action against them, whilst they are carrying out their duties as a Director or Officer of the business. The policy will pay for the costs of defending a claim up to and including any court action and also any compensation that is awarded.

While the core insurance cover is the same amongst insurers, not all policies are equal and the devil is in the detail. It is vitally important to check endorsements and exclusions to ensure you are properly covered.

D&O cover is here to stay and will provide comprehensive protection to allow Directors to carry out their daily tasks and responsibilities without the fear of personal financial disaster.

 

To discuss further please contact Tim Mackenzie on 0131 322 2632 or email tim.mackenzie@tldallas.com.

 

A Guide to Business Interruption

In business, continuity is the baseline of success. It goes without saying really, continuous revenue and cash flow without interruption is the lifeblood of SMEs.

Ensuring a business has the correct insurance to continue to trade irrespective of internal and external factors, is absolutely key to that business’s success, regardless of size.

While this isn’t news to most business owners, there can sometimes be a gap in understanding the options available for the worst case scenario of when a company is forced to close operations for an extended period. Business Interruption insurance deals with the continuity of income after insured property is damaged or lost after a catastrophic event.

It operates to cover business cash flow and in the process also protects the owner’s income stream and their investment in the business. The cover pays for ongoing costs that continue regardless of whether the business is closed or substantially affected; e.g. rent and utilities. It also covers additional costs incurred to minimise the effects of the closure or downturn, plus net profit and/or loss. In most cases, claims are triggered by weather or fire events.

 

Protecting your business priorities

Risks can range from increased frequency and severity of existing risks, such as climate change impacts on storms, water levels, bushfire risk; to new risks that develop through advances to technology and social or political changes, including terrorism, regulatory changes, pollution and other environmental impacts or food supply.

However, the risks faced by a business will vary based on the company, it’s critical operations, the risk management options available and a business owner’s risk appetite.

 

“Business owners should be mindful not to underestimate the length of time it could take for the company to be back to full operating capacity.”

 

In terms of purchasing Business Interruption cover, the business owner has three concurrently operating areas of interest:

  • paying ongoing business expenses to ensure the business is not wound up, and to protect the capital already invested into that venture
  • meeting personal guarantees given in connection with the business, and
  • maintaining personal income

 

Consider indirect risks to your business

Business owners can often overlook risks that could indirectly impact their company, so it’s important to take this into consideration too. 

Indirect business impacts refer to events affecting property other than the insured’s own. That includes damage to the premises of customers or suppliers, providers of public utilities, access issues due to damage to adjacent premises, or to roads, bridges or railways.

Given the potential ripple effect of damage an event such as public utilities breaking down could cause means almost every type of business can be affected.

The indemnity period explained

The indemnity period is the amount of time during which a business owner can claim the benefits of their Business Interruption insurance policy. It is typically the most important part of arranging the policy because the period decided will determine the total loss of interruption.

Business owners should be mindful not to underestimate the length of time it could take for the company to be back to full operating capacity.

The first consideration is the expected re- building period, but this will vary depending on the structure and there can be delays between the date of damage and the date when all necessary approvals have been received to start reconstruction.
There may be a considerable delay associated in moving back into premises, getting new supplies and attracting a new customer base.

Cover does not automatically cease when the building, or other damaged property, has been repaired or replaced. It will continue, subject to the indemnity period selected, until the results of the business are no longer adversely affected.

The period required will depend on the circumstances of each business but because maintenance of income is a primary consideration to owners and employees, the period selected should not be so short as to create a risk of business failure through shortage of cash-flow in the final stages of the recovery process.

It’s useful to also consider any lease requirements if the business operator is a tenant, in terms of liability for rent and other outgoings.

 

Article written from opinion taken from one of our Partner Insurers, QBE Europe.

 

As business insurance specialists, TL Dallas can arrange the policies that best meet your business needs. Please contact your local TL Dallas Business Insurance Team for further details.

 

Terrorism: What can you do?

In light of continued terrorism attacks and subsequent changes to the UK Government’s threat levels, businesses and individuals are urged to be extra vigilant.

The National Counter Terrorism Security Office (NaCTSO) has issued a National Stakeholders Menu of Tactical Options in response to this raised threat level. It is recommended that all businesses/partners read and consider these. NaCTSO are not at this time recommending any specific changes to how you operate, but recommend that you consider increasing and/or reviewing the following:

  • Security presence
  • Staff Vigilance
  • Partnership working
  • CCTV

Whilst these measures are quickly achievable, by far the greatest asset and tactic you have is engaging staff who deliver a high level of quality of service – by speaking to visitors to your buildings and challenging those displaying unusual behaviour.

You should also review your building and business continuity plans in the light of this attack, ensure that first aid points are fully stocked, and make sure that the location of key equipment is made clear to all staff. We also recommend that employees are directed to the Citizen Aid app and Run, Hide, Tell on YouTube.

The NaCTSO recognise that many businesses will have innovative ways of managing protective security. They ask that where you think you have a tactic or operating model that could be utilised by another similar organisation to good effect, that you share it with the NaCTSO so they can, in turn, share with others.

A final point to note, all terrorists use hostile reconnaissance in attack planning and we are reminded by the NaCTSO of the need to train staff and remind everyone of the vital role they play in recognising hostile reconnaissance. If in doubt, call the anti-terrorist hotline on 0800 789 321 or in an emergency, 999.

Useful Links

The following links provide additional useful information that may assist when deploying the tactical options:

https://www.cpni.gov.uk

https://www.gov.uk/government/publications/stay-safe-film

https://www.gov.uk/nactso

https://www.mi5.gov.uk

 

If you have any concerns or queries regarding your security arrangements, please contact your usual broking team or Gary Foggo (Health & Safety Consultant, TL Dallas) on 07920 862983 or email gary.foggo@tldallas.com.

 

Terrorism Insurance:

The nature of terror attacks are changing and so therefore are the types of insurance available. You may well suffer a loss of business following terror attacks even if the attack does not directly affect your premises and there are types of cover, such as ‘Active Assailant, loss of attraction & threat’ that would cover you in these instances.

For more information please contact your TL Dallas broker or email michelle.clewley@tldallas.com.