Fraud in trade credit insurance is a growing concern, threatening businesses with financial losses and operational disruptions. Here’s what you need to know to protect your company:
- Trade Credit Insurance Basics: Protects businesses from losses due to unpaid invoices caused by customer insolvency, defaults, or political issues.
- Fraud Risks: Includes fake customers, invoice manipulation, and cyber fraud like phishing and email spoofing.
- Warning Signs: Look for mismatched billing/shipping addresses, unusual purchase orders, and unfamiliar payment accounts.
- Prevention Tips:
- Verify customers and suppliers thoroughly.
- Use internal controls like regular audits and multi-level transaction approvals.
- Train employees to detect fraud and strengthen email security.
- Technology’s Role: AI tools and fraud detection systems can identify suspicious patterns and prevent losses.
- Insurance Benefits: Trade credit insurance not only covers unpaid invoices but also flags risks before transactions occur, helping businesses operate confidently.
Fraud is becoming increasingly sophisticated, but combining strong internal processes, employee awareness, and trade credit insurance can help safeguard your business. Read on for actionable strategies to stay ahead.
Webinar: Trade Credit
Types of Fraud in Trade Credit Insurance
Recognizing the various types of fraud that target trade credit insurance is crucial for businesses to protect themselves from potential financial losses. Fraudsters often exploit gaps in verification processes through a few key methods.
Fake Customers and Suppliers
One common tactic involves creating fake businesses using forged documents, fabricated websites, and falsified financial records to appear legitimate to insurers and companies.
Signs of fake entities include:
- Unsolicited inquiries with unusually tight delivery deadlines
- Lack of a landline phone number, relying solely on mobile contacts
- Email addresses and domains that closely mimic legitimate ones
- Unusual purchase orders that bypass standard credit checks
- Discrepancies between shipping and billing addresses
In March 2025, a client of Securitas Global Risk Solutions narrowly avoided a major loss when fraudsters used fake financial records for 2023 and 2024, impersonated email domains with subtle differences, and even created a fake website. The mismatched shipping and billing addresses on the purchase order raised suspicions, prompting further investigation.
"Trade credit insurance is more than just protection from unpaid invoices – it’s part of a broader fraud prevention strategy." – Kirk Elken, Co-founder, Securitas Global Risk Solutions
Fraudsters often target smaller businesses, assuming they might lack robust verification processes. These scams can involve last-minute changes to delivery addresses, requests for personal pickups using unmarked vehicles, or deliveries to unknown third parties. Verifying trade references is critical, as fraudsters frequently use associates to provide false references.
Beyond fake entities, fraud schemes also extend into invoicing practices.
Invoice Fraud
Invoice fraud erodes the trust essential to trade credit insurance and can result in severe financial losses for both insurers and businesses. These schemes often manipulate documentation to create fraudulent claims or inflate transactions.
Common invoice fraud tactics include:
- Fake shipping documents
- Overstated quantities or prices in legitimate transactions
- Duplicate billing for the same goods or services
- Phantom invoices for transactions that never occurred
The 2014 collapse of OW Bunker, a major shipping company, is a stark example of how internal fraud can devastate an industry. Large-scale internal fraud led to the company’s downfall, triggering numerous trade credit insurance claims. Businesses with proper coverage were shielded from financial losses, while those without insurance faced significant write-offs.
To combat invoice fraud, businesses must maintain detailed records, including shipping documents, delivery confirmations, and payment terms. These records are critical for proving legitimate transactions. Often, mismatched or incomplete documentation can signal fraudulent activity before claims are submitted.
As fraudsters become more sophisticated, their digital schemes are creating new challenges in the form of cyber fraud.
Cyber Fraud
The rise of digital fraud targeting trade credit insurance has been dramatic, with scammers leveraging email spoofing, phishing, and impersonation to exploit vulnerabilities in communication channels between businesses, insurers, and financial institutions.
Warning signs of cyber fraud include:
- Invoices for credit insurance issued in a funder’s name instead of the insurer’s
- Payment accounts in unrelated overseas countries
- Bank accounts registered to individuals rather than companies
- Deceptively similar email domains that are slightly altered from legitimate ones
- Urgent payment demands without proper documentation
Email impersonation is a particularly dangerous tactic. Fraudsters may pose as a company executive to pressure employees into transferring funds or approving fraudulent transactions. They often create fake websites and use domain names that closely resemble those of legitimate businesses.
The financial toll of cyber fraud is enormous. For example, card skimming alone costs customers and financial institutions over $1 billion annually, highlighting the scale of digital fraud across industries.
To mitigate these risks, businesses should independently verify insurance providers, use WHOIS searches to confirm email domain ownership, and process payments only through regulated intermediaries rather than personal accounts. Additionally, having legal or financial advisors review documentation before approving payments or claims can provide an extra layer of protection.
How to Detect and Prevent Fraud
Combating fraud requires a combination of layered verification processes, strong internal controls, and advanced technology. Together, these elements create a robust defense system against fraudulent activities.
Customer and Supplier Verification
Effective verification begins with detailed credit checks that go beyond surface-level financial data. This includes analyzing credit history, payment patterns, and loan types to assess creditworthiness comprehensively.
For high-risk vendors, Enhanced Due Diligence (EDD) is indispensable. This process involves a deep dive into a vendor’s operations, financial records, and business history. Incorporating Vendor Due Diligence (VDD) ensures that information provided by vendors is rigorously evaluated and cross-checked against multiple data points to confirm their legitimacy.
Modern tools like Know Your Vendor (KYV) technology enhance this process by scanning online sources, including court records and sanctions lists, while monitoring payment behavior to identify potential risks. Tracking customer payment trends can help businesses detect early signs of financial trouble, allowing them to intervene before issues escalate into fraud.
For example, in March 2025, a client successfully avoided a scam when inconsistencies in financial records, email domains, and shipping addresses raised red flags.
These verification strategies, when combined with strong internal controls, establish a solid foundation for fraud prevention.
Internal Controls and Audits
Implementing robust internal controls adds multiple layers of security, making fraud detection more efficient. Automated systems and regular screenings of public records can quickly flag unusual vendor behavior or payment patterns. Management reviews provide an additional layer of oversight, ensuring that any deviations from standard practices are promptly addressed.
Centralizing data in a secure repository helps maintain accuracy and prevents unauthorized changes to customer information. Coupled with industry-specific knowledge, this approach improves credit assessments by providing critical context about the sectors and regions where customers operate.
While internal controls are effective for catching irregularities in daily operations, advanced analytics play a crucial role in identifying emerging threats before they materialize.
Using Technology and Data Analytics
Technology has shifted fraud detection from a reactive approach to a proactive one. AI-powered tools can process massive datasets to identify patterns and anomalies, enabling businesses to address potential threats before they lead to losses. According to Deloitte, property and casualty insurers could save between $80 billion and $160 billion by 2032 by adopting AI technologies across the claims process. This could significantly reduce the estimated $122 billion lost annually to fraudulent claims, which account for 10% of all P&C insurance claims.
Fraud analytics tools collect, store, and analyze data to uncover suspicious trends and behaviors. The fraud detection technology market is expected to grow from $4 billion in 2023 to $32 billion by 2032, underscoring its increasing importance.
Organizations like BNY, PayPal, and the U.S. Treasury Department have already seen success with AI-driven fraud detection tools, reporting significant improvements in accuracy and loss prevention.
Email security is another critical area. Solutions that implement anti-fraud protocols help reduce the risk of email-based scams, while multi-factor authentication adds an extra layer of security by requiring multiple forms of verification for financial transactions. Employee training plays a crucial role, equipping teams to recognize phishing attempts, identify suspicious email patterns, and verify payment requests.
Businesses that adopt advanced AI fraud detection systems have reported up to a 40% improvement in identifying fraudulent activities. This highlights the transformative potential of technology in both preventing and detecting fraud effectively.
Best Practices for Reducing Fraud Risks
To effectively combat fraud, organizations need a well-rounded strategy that blends technology, clear processes, employee education, and risk management.
Improving Communication and Approval Processes
Strong internal controls are the backbone of fraud prevention. According to studies, businesses lose about 5% of their annual revenue to fraud, with half of these cases stemming from inadequate internal controls. Strengthening communication and approval processes can significantly reduce these risks.
A key strategy is to ensure no single person has full control over critical business operations. For instance, separating duties and requiring multiple approvals for transactions ensures that responsibilities like authorization, record-keeping, and asset management are handled by different individuals. This division of labor minimizes the chances of fraudulent activity slipping through unnoticed.
Take the example of a large U.S. retail company that revamped its internal controls after dealing with fraudulent reimbursement claims. They introduced measures like preapproval for expenses exceeding certain thresholds, limits on spending categories, mandatory original receipts for claims, and quarterly expense audits for executives. These steps, combined with a rule barring executives from approving their own expenses, created a more secure system.
Routine reconciliation is another critical practice. Regularly reviewing bank accounts, expense reports, and inventory records helps identify discrepancies early, preventing small issues from snowballing into major losses. Fraud hotlines have also proven effective – companies with these hotlines see a 50% reduction in financial losses and detect fraud six months sooner than those without.
"Strengthening the internal control environment helps prevent fraud by establishing clear procedures, segregating duties, requiring multiple levels of authorization, and promoting accountability at every level of the organization."
These process-oriented safeguards work best when paired with a well-trained workforce.
Employee Training and Awareness
Even the best processes need vigilant employees to spot potential fraud. Companies that invest in fraud awareness training tend to lose significantly less to fraud – on average, half as much as organizations that skip such training. In fact, tips from trained employees are the most common way fraud is detected, and they are twice as likely to uncover issues compared to other methods.
Effective training programs should clearly explain company policies, procedures, and the consequences of fraud. Employees should learn to identify red flags like suspicious email domains, unusual purchase orders, or mismatched billing and shipping addresses. Simple verification methods, such as the "Stop, Call, Confirm" technique, can help employees verify the legitimacy of transactions before proceeding. With more than $2.9 billion lost to business email scams in 2023, regular updates to email security training are essential.
"Creating a company culture where payment fraud can’t thrive is so critical. Building an environment where everyone owns fraud will foster this culture." – Jeff Taylor, Senior Vice President and Head of Commercial Fraud Forensics and Payment Strategy
Leadership involvement in training reinforces the importance of fraud prevention and sets an example of integrity for the entire organization.
Adding Trade Credit Insurance to Risk Management
Trade credit insurance is another powerful tool in the fight against fraud. With a 23.5% increase in business bankruptcies in the United States from 2024 to 2025, this coverage has become even more critical.
Credit insurers play a proactive role by evaluating the creditworthiness of customers and flagging potential risks before transactions are finalized. For example, in March 2025, a company avoided a costly mistake when a credit insurer declined a client’s application after uncovering fraudulent financials. The fraudsters had used fake documents, email impersonation with a slightly altered domain, and a fake website to deceive the company. Without the insurer’s due diligence, the business could have shipped products and received no payment in return.
The global trade credit insurance market covered 2.4 trillion euros in insured exposure in 2020, highlighting its role as a trusted risk management solution. This type of insurance not only protects against unpaid invoices but also allows businesses to focus on growth without constant concerns over payment collection.
"Credit insurance is more than just protection from unpaid invoices – it’s part of a broader fraud prevention strategy." – Kirk Elken, Co-founder of Securitas Global Risk Solutions
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How Accounts Receivable Insurance Supports Fraud Protection
While internal controls and employee training are essential for fraud prevention, Accounts Receivable Insurance adds an extra layer of security. It protects up to 40% of a company’s assets and helps reduce losses from bad debt by 5–15%, making it a critical tool in safeguarding businesses against fraud risks.
Tailored Coverage for Fraudulent Non-Payment
Accounts receivable insurance goes beyond covering insolvency or bankruptcy – it also offers customized protection for fraud-related losses.
This coverage acts as a financial safety net when preventative measures fall short. For example, if a company becomes a target of sophisticated fraud schemes – like fake customer identities, forged documents, or elaborate payment scams – the insurance steps in to help recover the financial losses.
For businesses exploring new markets or working with unfamiliar clients, this kind of coverage reduces uncertainty. Mike Libasci, President of International Fleet Sales, highlights its value:
"Accounts receivable insurance has allowed us to take on customers and transactions we wouldn’t have felt comfortable taking on by ourselves… It has not only allowed my company to take on larger deals, but be more liberal in terms, and the result has gone straight to our bottom line."
The benefits extend beyond just minimizing risk. Ori Ben-Amotz, Chief Financial Officer at Hadco, explains how it creates a competitive edge:
"With accounts receivable insurance, we don’t have to ask for cash up front or payment on delivery, which makes us much more competitive. This is the tool we needed to take more market share from our competitors."
In addition to tailored coverage, insurers provide even more robust fraud protection through detailed risk assessments and claims management.
Risk Assessments and Claims Management
Credit insurers play a proactive role by evaluating customer creditworthiness and identifying potential red flags before transactions take place.
These risk assessments include reviewing credit history, payment behaviors, financial stability, and account balances. Insurers also conduct market research to better understand customer needs and spot legitimate opportunities while steering clear of fraudulent activities.
When warning signs emerge, insurers send immediate alerts. They monitor for issues like email domain lookalikes, unusual purchase orders, mismatched shipping and billing addresses, or requests to bypass standard credit checks. This early detection system has proven effective in stopping fraud before it escalates.
If fraud does occur, insurers manage the claims process from start to finish. They assist with debt recovery and leverage their expertise in fraud investigations. Their network of legal professionals ensures businesses receive support tailored to the complexities of commercial fraud cases.
Throughout the policy period, insurers perform regular credit checks to track changes in customer financial health. They may also request financial statements from customers with questionable payment histories, ensuring ongoing transparency.
This proactive approach is further enhanced by the global reach of credit insurance providers.
Access to a Global Network of Credit Insurance Carriers
One of the key strengths of accounts receivable insurance is its global reach and expertise. The U.S. trade credit insurance market, valued at $2.02 billion in 2023, is expected to grow at an annual rate of 10.6% from 2024 to 2030, reflecting its increasing importance in fraud protection.
Globally, the scale of this system is immense, with 2.4 trillion euros in insured exposure in 2020, showcasing its reliability and scope. For businesses involved in international trade, this network provides essential protection against fraud risks, which can vary widely across regions and regulatory environments.
Credit insurers offer valuable insights into companies, industries, and economic trends across multiple countries. This knowledge helps businesses identify genuine opportunities and avoid areas with heightened fraud risks. Additionally, the global perspective aids in uncovering complex fraud schemes that span across borders.
For example, global due diligence has helped prevent deals based on fabricated financial statements or fake online identities. As Gary Lorimer, Head of Business Development for Aon Credit Solutions, puts it:
"As the government support schemes taper off, the market expects to see the levels of insolvency increase; and having trade receivables backed by insurance as an asset will become even more important as time goes on. It’s known as credit insurance, but it’s more opportunity protection."
Key Takeaways on Fraud Risks in Trade Credit Insurance
Fraud in trade credit insurance is becoming a more pressing concern. Between 2018 and 2022, email scams surged by 111%, leading to losses of $2.7 billion in 2022 alone. By 2023, overall fraud losses across the U.S. had climbed past $10 billion. These figures underscore the urgent need for businesses to adopt strong protective measures.
As fraud schemes grow more sophisticated, trade credit insurance emerges as a vital safeguard for businesses. It not only provides protection against unpaid invoices but also plays a proactive role in fraud prevention. Kirk Elken, Co-founder of Securitas Global Risk Solutions, highlights this dual role:
"Trade credit insurance is more than just protection from unpaid invoices – it’s part of a broader fraud prevention strategy."
Insurers take proactive steps to combat fraud by conducting detailed risk assessments, monitoring customer creditworthiness, and deploying early warning systems to detect potential issues. For instance, in one notable case, an insurer declined to cover a transaction after uncovering negative news about a buyer. This decision prevented the client from shipping products to fraudsters who had orchestrated an elaborate scam involving fake financial documents and a spoofed website. Beyond prevention, trade credit insurance also provides businesses with the global coverage needed to operate confidently in an interconnected marketplace.
The scope of this protection is extensive. In 2020, trade credit insurance covered 2.4 trillion euros in insured exposure, safeguarding over 14.2% of businesses worldwide. This comprehensive monitoring system is a cornerstone of fraud prevention. Nicolas Garcia, Group Commercial Director at Coface, explains its value:
"Although people often don’t know about credit insurance, it’s actually a powerful tool for controlling commercial risk. It involves monitoring the payment behavior of existing clients, weighing up potential business partners and gathering business intelligence across the entire supply chain."
To effectively tackle fraud in today’s complex business environment, companies must embrace a multi-layered approach. This includes implementing strong internal controls, training employees to recognize fraud, leveraging advanced technology, and securing comprehensive insurance coverage. Trade credit insurance doesn’t just shield businesses from fraud – it also supports growth, improves access to financing, and gives companies the confidence to explore new opportunities in an increasingly connected global economy.
FAQs
How can businesses verify new customers or suppliers to reduce fraud risks in trade credit insurance?
To protect your business from fraud, it’s crucial to conduct detailed due diligence when dealing with new customers or suppliers. This means verifying their identity, examining their financial records, and reviewing their credit history. You can also ask for references from reliable sources and assess their standing within the industry to get a clearer picture of their credibility.
On top of that, establish strong internal controls like automated fraud detection tools and consistent vetting procedures. These measures can help you work only with reliable partners, lowering the chances of fraud and safeguarding your business from potential financial setbacks.
How can companies use AI and advanced technology to prevent fraud in trade credit insurance?
How AI Helps Prevent Fraud in Trade Credit Insurance
AI and advanced technology are reshaping how businesses tackle fraud in trade credit insurance. By analyzing massive datasets, AI tools can spot unusual patterns that might indicate fraudulent activity, often catching red flags before they develop into bigger problems. These tools also simplify claims processing, leading to quicker and more precise decisions.
Using AI, businesses can counter sophisticated schemes like identity theft or fake financial documents. This means human teams can dedicate their time to more complex investigations, while overall security and efficiency improve. Incorporating AI into your fraud prevention efforts not only minimizes risks but also safeguards your company’s financial health.
How does trade credit insurance help businesses detect and prevent fraud before it causes major financial issues?
Trade credit insurance plays a key role in protecting businesses from fraud by keeping a close eye on suspicious activities, verifying customer details, and spotting unusual transaction patterns. With the help of AI and machine learning, it provides smarter fraud detection and helps minimize risks.
Beyond that, businesses gain from consistent risk evaluations and customized prevention plans, allowing them to tackle weak spots early and safeguard their financial health.
