Businesses are becoming targets of fraud schemes that involve phishing, smishing and money/gift cards. Picture: Freepik
The business sector has experienced a spike in fraud.
This is according to quarterly Debtsource credit application data which shows a sharp increase in fraudulent activity from Q2 to Q3 2023 along with a significant rise in the value of fraudulent applications.
The context is that businesses are more reliant on supplier credit facilities as their prime form of business lending due to a decrease in available bank funding.
“Longer supply chain delays in shipping, harbour and rail networks has placed additional strain on company cashflows, forcing businesses to access second-tier financing options such as invoice discounting or supply chain finance,” explains Frank Knight, CEO at Debtsource.
“However, these are typically at much higher rates than traditional bank funding, adding further pressure to profitability and cashflows.”
Lenders, in response to the heightened interest rate environment, have adopted a more cautious stance, evident in their reduced risk appetite for traditional unsecured products.
“This caution translated into offering smaller average loan amounts and imposing limits on new revolving products,” Knight said.
Due to the greater reliance on supplier credit facilities, these lenders are bearing heightened risk of increased fraud.
The constant emergence of commercial identity theft and scam operations brings about weekly alerts from trade credit insurance companies, pushing credit providers to heighten their vigilance.
The Q4 2023 TransUnion Consumer Pulse Survey shows that 28% of respondents were targeted by fraud schemes in the prior three months, with 10% falling victim while Experian’s latest fraud report says that 73% of businesses in the survey saw their fraud losses increase in the past 12 months.
Fraud schemes typically involve phishing, smishing (fraudulently receiving information via SMS) and money/gift cards, with businesses more at risk in the event of employees falling prey to such schemes.
These issues highlight the need for better data security measures and more secure digital environments by suppliers.
According to Knight, recent regulatory changes have had a profound impact on commercial credit transactions.
“Credit providers are now required to register and adhere to the new Financial Intelligence Centre Act (FICA) regulations. This entails not only FIC registration but also the identification of beneficial ownership and rigorous Know Your Customer (KYC) procedures,” Knight said.
“Consequently, the process of opening new accounts has become more intricate, necessitating adjustments to credit policies, applications, and the reporting of cash transactions exceeding the specified threshold.”
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