News / Forwarders should be wary of granting extended credit, says TT Club

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Freight forwarders should “beware of fraudulent customers offering lucrative loads”, said TT Club, as it highlighted the dangers of granting extended credit. 

Today, transport and logistics insurer TT Club revealed the prevalence of credit fraud over the last year – a financial risk that leaves operators with freight costs that can’t be collected.  

“The losses as a result of such fraud can escalate quickly,” said Josh Finch, TT’s logistics risk manager.  

“Credit fraud is an exposure to all in the global supply chain and a danger that ought to be considered through the risk management structure of every business,” he urged. 

And while the methods that bad actors use vary, TT Club highlighted that “they all prey on the priority of all operators to maximise revenue in a highly competitive commercial environment”.  

One example, Mr Finch explained, would be a new customer approaching with a single shipment for international transport, for instance from Bangladesh to Spain, with the suggestion that this could be the start of a potentially large and lucrative contract.  

The shipment will be sent by ocean and completed by road at the source and destination. A rate is then agreed and a 60-day credit facility arranged. On completion of the shipment the freight account is settled within the agreed 60 days. 

“What follows, from the operator’s point of view seems favourable, as four more consignments of clothing are booked on similar terms to the first. Then the ‘sting’ is put in place as these consignments become urgent and must be sent by air.  Several more air freight shipments occur regularly over a three-week period.  All successfully delivered,” said Mr Finch. 

“However,” he continued, “after that, communications to the customer go unanswered; the 60-day credit period expires, and the freight account goes unsettled. The operator is left with significant carrier costs and no revenue.” 

According to the British International Freight Association (BIFA), “based on the unfortunate experiences of a number of its members”, some similar characteristics shared by this type of fraudulent customer could include no record of customers ever importing or exporting previously on the UK’s HMRC Traders website, completely new contacts, and never having previously engaged with the operator. 

BIFA warned that other red flags could include the customer wanting only airfreight handled; requires no customs clearance or delivery at destination; accepts the quote without negotiation; and if there are large volumes of cargo involved. 

TT Club has therefore urged operators to engage in “extensive due diligence” when advancing credit to new customers. 

Mr Finch concluded: “Undoubtedly the best course is to withhold extended credit such as 60 days until a trusting relationship has been established with a customer. If commercial necessities dictate offering a more immediate credit facility, then careful due diligence is vital. 

“It is wise to maintain that primary risk management revolves around knowledge of your customer at all levels including regulatory compliance, safety, and security.”