According to a global survey report released by EY earlier this year, about 50 per cent of Indian executives interviewed felt that corporate fraud is more prevalent in India today than it was three years ago. The risks of fraud for businesses are much greater today than they were in the past. Just a few days ago, fraudsters posing as the CEO of Serum Institute of India on WhatsApp duped the company’s finance department of Rs. 1.1 crore.

The same survey also found that India ranked second among 54 countries surveyed wherein organizations had experienced ‘significant fraud’ in the aftermath of the pandemic.

Earlier in June, three cases had been registered by the police on the basis of complaints filed by three freight forwarding companies which were cheated of ₹15.52 crore scams involving many shell export and fraudulent shipping companies.

Similarly in December 2021, Pune based Emcure Pharmaceutical was cheated for Rs. 1.95 crore by fraudsters who had created a fake e-mail ID of a Chinese company.

These are just a few examples of frauds identified and reported by Indian exporters. In actual, the number of such cases is much higher.

For a business to thrive in the current environment, it is a necessary for them to approach all business transactions with caution. Some useful measures for organizations to safeguard themselves are outlined below.

 

Verify your business partner’s authenticity:

Export enquiries from any source (a direct end consumer or any trade-oriented portal to which an exporter is subscribed to) should be verified.  The first step after the receipt of an enquiry should be to check the authenticity of email ID of the enquiry. This can be done using websites such as zerobounce.net or email-checker.net.

The signature of the sender should be confirmed. One must check if the same credentials are reflected on the respective company’s website as well. An alternative would be to also connect via social media platforms such as LinkedIn, Facebook etc. This also allows one to verify if the individual really belongs to the same firm from which the request was received.

The next step would be to arrange for a telephonic call or a meeting on either zoom or Microsoft Teams with the person enquiring to ensure that the business request is actually genuine. It would also help one derive a clear understanding pertaining to the intricate details of the relevant requirement. If the customer has a location in India, it is recommended the firm take the effort to thoroughly check and confirm the genuineness of the requirement.

Coming to the commercials

Once the genuineness of the business query has been established, the payment terms may be discussed. These can vary from one customer to another. It is the exporting organization’s call if any credit period is to be provided. However, for new customers, especially from the African continent, it is recommended to present an offer to wherein the payment terms clearly state that the billing would be on an ‘advance payment’ basis. This would help minimize the risk of not receiving payment.

Perhaps the most important aspect regarding the payment terms is that the original documents should be routed through the bank on either end – exporter and the buyer as well. This will guarantee that the respective banks will ensure and also commit for undertaking the payment being remitted as per the due date and terms decided. Acknowledgement of the Purchase Order from the organization to the customer is mandatory.

For new customers, organizations should also apply for insurance with the Export Credit Guarantee Corporation (ECGC) on receipt of the Purchase Order. In case on any defaults, this would allow for the exporter to be insured for the total amount of the consignment being exported. It is also important to note that the details while filing for ECGC cover should be precise and an accurate in meaning. These should also tally to the Purchase Order generated.

In case the customer requests for any changes in the consignee details or buyer details, the same should not be accepted on face value basis. The exporter should check if they have availed ECGC cover in the name of the new buyer entity. Verify credential and payment terms through ECGC. Organization can also check the buyer defaulter list in the website of ECGC before filing for risk insurance cover.

 

Making sure everything is in order before closing the deal

As a precautionary measure, it would be better to have a marketing agent available in the customer’s location to check first-hand the credentials of the new buyer in a particular country. Alternatively, sales personnel can also visit the new buyer.

Always check for correctness of bank address and location of the bank provided by the customer. In case of any doubts with regards to the bank, one can check with the list of licensed banks by the RBI to re-confirm the genuineness of the bank details and existence.  Exporters should also visit the website of customer bank for verifying its authenticity.

Shipping documents from the exporter’s side should be mentioned as ‘To Order’. This will help in safeguarding the exporter especially in times when the customer is not genuine or is refusing to make timely payments.

Any payments made, either CA, DA, DP, etc. and documents for ECGC cover should always be routed via bank and not directly to the customer.

Lastly, the organization can check with the Bureau Veritas for a number of customers.  For new customers, it is also suggested to check the credit rating / financial health of the company from some leading international agencies like Dun & Bradstreet, Experian or Equifax.

 

Better safe than sorry

According to the Reserve Bank of India’s (RBI) annual report for FY21-22, banks and other financial institutions reported an increase of 23% in the number of instances of fraud year on year.

Keeping the recent global developments and trade tensions in mind, it is in everyone’s best interest to keep trade flowing. This will help ensure the supply of essential products and also send a signal of confidence for the global economy. However, security measures and due diligence must become part of everyday culture for employees to safeguard their organizations.

Organizations should prioritize training their employees on all aspects of the process to minimize the risk of fraud. Imbibing due diligence as a part of the workplace culture is a must. With just a little more effort during the initial stages of a new business opportunity, employees can protect their organizations from substantial losses or unfavorable outcomes in the future.

 

About AVA Chemicals:

AVA Chemicals is a globally renowned company engaged in formulation and supply of premium-grade chemicals to diverse industries such as Pharmaceutical & Lab Reagents, Agrochemicals, Home & Personal Care, Oil & Gas, Water Treatment and many more. Over the last three decades, AVA Chemicals set-up three state-of-the-art Facilities (ISO and HALAL certified) in Badlapur, India, and a strong Clientele presence in over 45 countries. It aims to be known as an ethical company providing chemicals to companies who manufacture products that are used in day-to-day life, thus touching the lives of millions of people.

 

For more information, please visit www.avachemicals.com or email us at relations@avachemicals.com