Bust-out fraud is soaring. Catching the perpetrators is difficult because
they have usually disappeared before the scam is detected.

These bust-out artists typically set up bogus companies or take over legitimate
ones, order merchandise on credit, sell the goods for cash and disappear without
paying.

Bust-outs are becoming more sophisticated, making it difficult to detect. There
are, however, some clues credit risk managers can be on the look out for.
According to the National Association of Credit Management, the greater number
of signs, the greater the odds that a fraud may be occurring.

Signs to watch for:

Same name scam: Bust-out artists use names that are confusingly similar to
legitimate businesses. Pay attention to correct spelling and the address. Watch
for new ship-to addresses.

Phony references: Be wary of trade references in the same geographic area.
Question references that offer glowing reports or have impressive sounding
names. Be cautious when references are answered with an answering machine. Is
the reference listed in Dun & Bradstreet?

Rush orders: Forced shipments without a thorough credit check may be suspect.

Change in ownership: Watch for ownership changes of established accounts. Learn
the background of the new owners.

Questionable source of capital: If principal's former occupation isn't congruent
with a large capital investment, it may indicate a front for the hidden owner of
the business.

Unsolicited orders: Be wary of large orders placed by unknown customers at trade
shows

Flawlessly completed Credit Application packages: Question unsolicited requests
for credit that are perfectly completed, containing photocopies of mercantile
credit reports, financial statements & profit and loss statements.

Unknown background: Beware if the applicant refuses to divulge their background
or comes from a background unrelated to the current business.


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