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Due Diligence & Credit Investigations
Posted By:  Maria Murdock
Friday, November 02, 2012

Not just for Compliance Reasons: Why Credit Managers Should Do Due Diligence Too

Lately the term "Due Diligence Investigations" has been heavily aligned with Chief Compliance Officers and General Counsel, a group with vastly different concerns than the Credit Manager. Sure, at first glance, they have extremely different roles: those in compliance are trailblazing a brand new profession in companies, focusing on ethical procedures, while Credit Managers focus on the protection of cash flow: the wholesome bread and lucrative butter of the company. 

However, recent events concerning three fraudulent Canadian companies show that Credit Managers might want to take a page out of the trailblazers' book and investigate a bit further than the balance sheets.  Large international interactions  often require more than a credit report.  Even if your prospective client is right across the border, it is imperative to avoid being lulled by a false sense of security. You need to dig deeper. 

According to ProSales Magazine, the three Canadian companies, Canstruct Inc., AYA Distributors, and 3733581 Canada Inc., were reportedly contacted and placed orders with dealers nationwide….Individual losses ran as high as $200,000 worth of materials per transaction, and more than 50 dealers had been solicited with requests for product.  As stated in, "they have allegedly scammed dozens of sellers across the United States."

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Canstruct has its own website (including a "video" that cleverly never actually starts, "perpetually loading," Kreller's investigator notes: see image above), while it has also supplied balance and references to their targets that appeared at first blush to be valid. Jeff Keller, Manager of Legislative and Regulator Affairs for the Northeastern Retail Lumber Association (NRLA), who has been investigating this case with FBI, tells NACM "[These companies] pretty much just ask for a $50,000 line of credit. When you ran the credit, it came back as AAA [rating]."

As Rick Seeley, President of the Michigan Lumber and Building Materials Association, states in the article by ProSales,  "The problem with this particular situation is that it looked very, very credible...these people were just very, very sophisticated." 

In addition to balance sheets and references, third party investigators can verify through outside sources whether information supplied by the potential customer is correct. Jennifer Hudgens, VP at Kreller, in both the Credit and Collections Departments, states that “Direct interviews can be made with the subject company: how is the phone answered, is a live person or available during work and after hours, is there a professional Voice answering system in place with prompts, or just an answering machine?”  Also, at Kreller, we believe that there is strong value to conducting an on- site visit-what is actually located at the company’s address? We find in some cases an impressive website merely leads us to an apartment residence or the P.O. Box located within the local Kinko’s store.    

In today’s precarious economic climate, digging deeper on larger transactions is the best way to protect your bottom line. As the old expression goes in journalism “If your Mother says she loves you…check it out.”

Curious? Have any questions about this post?

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  • Anti-Corruption
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    • 07/23/2013 - From Due Diligence...
    • 06/10/2013 - NSA Scandals: FCPA...
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    • 12/12/2012 - What the FCPA Guid...
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In the competitive world of due diligence services, Kreller consistently provides high-quality and comprehensive reports.  I regularly recommend Kreller to compliance professionals who need professional, cost-effective and timely due diligence investigations around the globe.  Kreller representatives are responsive and solution-oriented to meet the client’s needs.
-Michael Volkov, Attorney, Volkov  Law Group
Kreller’s due diligence team has provided outstanding global investigation services for our company for the last five years. Their deep-dive, boots on the ground approach to vetting our third party vendors is critical to the safety and security of our clients’ missions.
K.S. --  Director, Compliance/Audit, Fortune 100 Aviation Services Company
Kreller performs due diligence investigations all over the world for our clients in oil and gas related entities. Kreller delivers outstanding service, in-depth reports and is always quick to respond to inquiries. Our association with Kreller provides us with a high level of confidence when we evaluate whether to proceed with engagements involving potential business partners and third parties as agents.
M.J. -- Outside Counsel Representing International Gas & Oil Entities

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