Incomplete reference information may indicate fraud.(Required Reading)(Cheap Bits Drilling Co.)

When a new account supplies credit references over the phone and only gives telephone numbers but no addresses, it may be a sign of fraud. If a customer wants you to contact credit references pronto, and can't wait for you to obtain a credit history from their references in writing, it may be in your company's interest to find out the reason for the rush.

The Cheap Bits Drilling Co. called an industrial supply distributor and sought to open an account immediately. Cheap Bits' principal wanted to order machine tool bits and have them delivered right away. The distributor told the principal that trade and bank references were needed before credit could be extended. "No problem", answered the principal, who quickly rattled off his firm's trade references and their phone numbers.

The distributor told Cheap Bits' principal that it was company policy to require references' mailing addresses in addition to their telephone numbers. The principal explained that he was in a big hurry to obtain the product and pleaded with the supplier to make an exception just this once. The distributor finally agreed and shipped a small order on credit after telephoning the references who gave "decent" responses about the Cheap Bits Co.'s payment history.

After the firm received the order, the principal sent two members of the supplies staff with whom he dealt an expensive gold pen and pencil set as a token of appreciation. Several more orders arrived and were shipped.

About three months later, the bills started becoming past due and efforts to reach the Cheap Bits Drilling Co.'s principal were unsuccessful. When the supplier called the ...