This is when criminals set up what’s an apparently legitimate business, but with the intention of defrauding both its suppliers and customers.
Long firm fraud happens after the business has developed a good reputation and credit history. Short firm fraud, often internet-related, happens when the business has only been in operation for a few months.
Long firm fraud
Long firm fraud starts with the criminals placing lots of small orders with wholesalers and paying them promptly. Having established a good credit history and having won the trust of their suppliers, the fraudsters then place several larger orders with their suppliers. But once they receive the goods, they promptly disappear and sell the goods elsewhere.
Short firm fraud
This is similar to long firm fraud but it takes place over a much shorter timescale. Usually, the business doesn’t try to establish any form of credit history or credibility, apart from perhaps filing false accounts at Companies House if it’s a limited company.
The fraudulent business has no day-to-day trading activity. Instead, the fraudsters use credit to obtain goods that are delivered to third-party addresses, often on multi-occupancy trading estates. Again, the goods are sold on for cash and the criminals then disappear.
These kind of long and short firm fraudsters are happy to deal in any goods or services with a market value. They obviously prefer goods that aren’t traceable, turn over quickly and are easily disposable. For example: electrical goods, computers, toys, toiletries, wines, spirits, fancy goods and confectionery.
The most immediate impact of these frauds is serious financial loss. As a victim, your organisation may also suffer from low staff morale, adverse publicity, disruption caused by a major investigation, or even further fraud under a different guise.
Are you a victim of short or long firm fraud?
- You’re a wholesaler who has received lots of small orders from a fraudster. That fraudster has then placed a much larger order but has disappeared without paying.
- You’re a supplier who has had fraudsters with no credit history order goods from you.
- You might have only lost a small amount or it might be a very serious financial loss.
- As well as financial loss, you might also be suffering from low staff morale or negative publicity.
What should you do?
- Report it to Action Fraud.
- Stop any further business dealings with the organisation.
- Keep all correspondence in case it can be used as evidence later.
Protect yourself against short and long firm fraud
There a several steps you can take to protect your organisation from long firm and short firm fraud:
- Stop and evaluate before accepting a much larger order from a business you’ve only been dealing with for a relatively short time.
- Check the trading history of any business you are dealing with.
- Ask the business for trade references. And check the authenticity of the referees. Sometimes, criminals form companies to fraudulently provide references for each other.
- Take steps to verify the identity of the office holders.
- Visit potential new customers for a thorough on-site inspection of the business premises.
- If it’s a limited company, find out if it has filed accounts; check whether the accounts are credible given the trading period; and ensure they have been prepared by a genuine reporting accountant.
- Ask to check the credit histories of the people running the business.
- Check for evidence that they do live where they say they live.
- Check publicly-available databases on the Insolvency Service and Companies House websites to see if the individuals are bankrupt, or otherwise disqualified from acting as directors of a limited company.
- Check who owns the domain names of any website the business uses.
- Be wary if the only ways of contacting a business are through webmail-based email addresses and mobile telephone numbers.
- Ensure that goods are delivered to identifiable individuals and addresses, and don’t allow goods to be cross-loaded to unidentifiable vehicles waiting at the delivery location.
If fraud has been committed, report it to Action Fraud.