Credit fraud is emerging as a significant concern in the global supply chain, according to TT Club, a major insurer in the logistics sector.
This type of fraud, which often goes undetected due to the remote nature of the theft, has been increasingly prevalent in recent months. TT Club has previously warned of risks from fraudulent documents, mandate fraud, and fake trucking companies, but it now highlights credit fraud as a growing threat.
Josh Finch, logistics risk manager at TT Club, explained that credit fraud poses a financial risk to all parties in the supply chain. The main issue arises when operators are unable to collect freight costs, leading to potentially significant losses. Finch stressed the importance of addressing this risk through effective risk management strategies.
Fraudsters often target businesses by exploiting the drive for higher revenues in a competitive market. Finch provided an example of how such fraud typically unfolds. A new customer might approach an operator with a shipment request, typically for international transport, such as from Bangladesh to Spain. After agreeing on a rate and a 60-day credit facility, the operator completes the shipment, and payment is made on time. Encouraged by this, the operator proceeds with further shipments under similar terms.
However, the situation changes when the customer requests more urgent shipments, often by air. These air shipments are successfully delivered over several weeks. But when the 60-day credit period expires, the operator is unable to reach the customer, and the freight account remains unsettled. The result is significant carrier costs without payment.
To mitigate this risk, TT Club advises operators to conduct thorough due diligence when extending credit to new customers. The British International Freight Association (BIFA) has identified several warning signs of potential fraud, including customers who exclusively request airfreight, require no customs clearance or delivery, and have no previous records of importing or exporting with UK customs.
Finch concluded that businesses should consider withholding extended credit until a reliable relationship is established with the customer. If immediate credit is necessary, operators are advised to perform detailed checks to minimise the risk of fraud, TT Club said.
