In a post-Enron world, and an environment in which company impersonation has become more common, it could be argued that you might as well toss a coin as look at financial data as a means of validating new business clients.
Impersonation arises when individuals buy an off-the-shelf limited company, steal another company's financial statement, erase the genuine details, insert their own, and file the accounts as though they are theirs.
This creates a rating with business reporting agencies. Thankfully these incidences are few, but regrettably Companies House is under no obligation to check any data it receives.
Resellers have never had to consider this problem, as many simply do not bother checking new business associations.
Euphoria takes over when they suddenly get a deal from a 'well-known' name, or a corporate blue-chip, or a juicy fat margin order from a pretty insubstantial buyer, and it makes them vulnerable to risk.
Any reseller engaged in providing credit to its clients should take time to identify precisely with whom they are dealing and consider the risk of being paid either very late or not at all.
Never assume that buyers are automatically worthy of credit, particularly on valuable deals, and check the status of buyers that come at you out of the blue.
Fraud is a repetitive theme in the channel and, with distribution shutting many of the doors, perpetrators are moving in where the processes to combat them are rarely in place.
Reporting agencies such as Graydon, Dun & Bradstreet and Experian offer ad hoc use of their systems to check out customers before doing business with a simple credit card payment.
So there is no need to subscribe to expensive annual contracts. The cost of an average comprehensive report on a UK business is about £15, a small price to pay for peace of mind.
Reports provide a rating on the business and historical financial data, allowing you to work out your prospective client's payment habits.
Through their links with the channel, these agencies are aware of current and past fraudulent acts and may be able to warn you.
Many distributors' websites have links to business reporting agencies at discounted prices for individual reports.
I have seen the embarrassment felt by many businesses that have not applied checks before releasing product. Knowing those you sell to is common sense.
Eddie Pacey is group credit services manager at Bell Microproducts Europe.
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