The pandemic, alongside the rise in technology advancements, has forced SMEs to change the way they operate. This can be anything from altering their business models and plans to keeping up with ever-changing customer trends. The last thing an SME needs is added fraudulent behaviour from trading partners, customers and even employees.

According to a 2017 MGI report, fraud costs Australian businesses hundreds of thousands of dollars every year and many of these instances are not reported, making this number probably much higher.

Many small business owners believe that because they don’t have a large scale operation, fraudulent occurrences will not happen to them. In fact, the 2017 MGI report found that 72 per cent of small to medium sized businesses do not think that cyber fraud is a risk to their business.

Criminals often target these smaller scale businesses because they know they are not on top of their credit management. Just like how a bank runs credit reports for cases of fraud, small business owners need to perform the same due diligence as fraud losses are very real in every industry.

Requiring persistent strategy and the correct credit management tools to check credit history, protecting the integrity and reputation of your business can be managed with CreditorWatch’s suite of tools. In this article we will cover the types of fraud that commonly occur in small businesses and how you can protect your business from running into irrevocable damage.

Common types of small business fraud

 In 2022, running a business is usually done digitally. This wave of digital processing and operations can make things run more smoothly but it can also increase the level of fraudulent behaviour. With the increase in payment automations and the plethora of applications that take and process payments, detecting false ones can be a tricky task.

With almost every finance process now online, it’s easy to be scammed. Australians lost over $851 million to scams in 2020. Keeping your customers safe is also an important factor. Higher than ever, customer expectations for a secure experience are at the forefront of their shopping experience to keep their own finances in check. Fifty seven per cent cited security as the most important aspect of their online experience.

In 2022, identity theft is easy. Financial identity theft is the most common form of identity theft and is easily conducted by criminals in the world of technology. This can be done by creating fake identity documents that can be a combination of someone’s photo and someone else’s name and vice versa. These bogus identities need to be thoroughly checked by your small business to avoid them stealing your data and money and possibly your customers’ data and money.

Trading partners can come across as genuine on paper but those papers could be false. Fraudulent financial reporting is rife in SMEs and that’s because business owners take face value as a viable way to assess someone’s financial health. Without a proper credit check, this can often give a false impression about a company’s performance and profitability.

Whichever industry you work in, taking a person’s word is not enough to prove that their financial health is clean. Many SMEs come across phoenix companies which often seem legit.

Illegal phoenixing can occur when a person who has previously been bankrupt restarts their company after liquidating or stripping cash and assets from it. They then begin a new company with a different name to hide their poor financial position. It is prevalent in every industry and can be extremely hard to detect without the correct tools. These phoenix companies can often show clean credit scores and credit reports as they have a new name and possibly a new director.

Working with a phoenix company can cause financial damage to your small business and is almost always impossible to come back from. Although not all phoenix activity is illegal, it’s vital information to know about all phoenix activity.

If you have a small business, investment can sometimes be the only way to get ahead. Investment fraud is prevalent in small businesses, as criminals know the idea of big payouts, guaranteed returns and quick money is appealing to owners looking to boost their business. Accounting for the biggest cases of fraud in 2022, investment scams cost $328 million in losses.

If bricks and mortar is your small business game, mortgaging and lending fraud is a considerable way to lose your equity. Deliberately providing you with false documents, this type of fraud can be in the form of occupancy, income or employment fraud.

Protecting your small business from fraud

Investigation isn’t just for journalists or law enforcement. It’s important you don’t take anyone’s word at face value and do your own digging. Catching fraudulent behaviour before it costs you your business is easily done with a CreditorWatch credit check. This advanced due diligence is performed through vast amounts of data and credit management tools, ideal for protecting your business.

Asking yourself how well you really know your trading partners is a crucial part in your investigation. Using CreditorWatch’s Know Your Customer (KYC) collects any information to verify the entity and the beneficial owner of a business. This management tool performs Verification of Identity (VOI), to safeguard against fraud. Identify involvement in bribery and corruption with a Politically Exposed Person (PEP) and sanction search helps you to avoid falling victim to scammers.

Reviewing an individual’s financial activities to prevent corruption, tax evasion, theft and more is a legal necessity for businesses. Meeting AUSTRAC obligations, CreditorWatch’s Anti-Money Laundering reporting complies with KYC and AML legislation and checks for civil litigation searches, police checks and any other illegal activity. The AML and Ultimate Beneficial Owner’s Report (UBO) screens and verifies the businesses and individuals you are working with to avoid criminal risk to you and your business.

CreditorWatch credit management tools

Protect the integrity and reputation of your business through credit management solutions. Providing you end-to-end protection, CreditorWatch is essential to your business to avoid falling victim to fraudulent scams. Contact our experienced team today to see how we can safeguard your business today with affordable and accessible credit reporting.