The commercial equipment leasing and finance industry is always a target for fraudulent activity, especially when business is strong and the guard is down. I recently consulted with a client that was hit with several fraudulent transactions from a vendor relationship. Hindsight is 20/20; however, this company missed all of the obvious signs in their rush to prove that they were better than their competition. The company cut operational corners to win what they perceived to be a large vendor opportunity. In fact, q single unscrupulous vendor sales representative was taking advantage of a naive, overzealous originator and his company.
Originators in the commercial equipment leasing and finance industry are the eyes and ears of the industry. They should always be on high alert for transactions or relationships that just don’t make sense. Below are some of the signs that should have alerted this particular originator and his company:
- For many years, the vendor was a big prospect that attracted large competitors. In the past, the company was unable to compete in rate or programs to win a relationship with this vendor. Suddenly, a single vendor sales rep reached out to a relatively new originator and wanted to send him all of his business. Why now? Yields or structure no longer mattered. The vendor rep just wanted a quick turnaround and for the vendor to control all contact with the customer.
- The vendor sales rep requested that no contact be made with his management team because they wanted him to use a national program which he didn’t prefer.
- The invoices all had low invoice numbers, although the vendor was a national company with a long-term history. The name on the invoices was slightly different than the vendor’s corporate filing. This was explained as a name the vendor only used as a trade name in that particular state.
- All monies needed to be wired.
- In the first week of the relationship, the vendor sales representative submitted four deals. All were instantly approved based upon high credit scores, TIB, and excellent PayNet scores. But the dates on the vendor applications were 30 – 45 days old. The credit reports showed that the same competitor had pulled credit 1 – 2 days after the application date.
- All of the equipment was ready for delivery and funding within 7 days. Usually, this type of equipment would take 30 – 60 days to be delivered.
- All applicants wanted payments in arrears and for upfront fees to be billed with the first payment.
- The vendor constantly demanded speed. He needed an approval within an hour, documents to be sent to him within hours, and funding within days of the application.
Needless to say, these four larger than average transactions would help the originator have an excellent production month. Everyone was anxious to keep the relationship moving forward. In the following month, six additional deals were submitted, approved, and funded.
The payment processor realized that the payments were made with checks drawn on the vendor’s bank account (with the slightly different name). Upon calling the sales manager, it was discovered that the vendor sales rep had been fired nearly 90 days before.
In an effort to quickly build volume, the company and originator had missed the signs of fraud and now have a several hundred thousand dollar loss to contend with. If a relationship is too good to be true – watch your step, proceed with caution, and make sure that all of your t’s are crossed and i’s are dotted. The best relationships are earned. Due diligence is necessary on every relationship.