There is no universal standard for identifying red flags. Most cases concern small invoice amounts at first, well within your company’s credit limits, so they stay below the radar. This may include examining financial statements, economic indicators, or historical data. Red flags can be found in the data and in the notes of a financial report. Below are seven red flag identifiers outlined by U.S. EXIM's office of Inspector General: Borrowers, exporters, and foreign agents will misrepresent or omit the identity of parties involved, monies transferred, or authenticity of business operations to cover up fraud. Here's how to do that for individual stocks. Is fraud on the rise? If you would like to learn more about how EXIM can help you grow your international sales safely while still offering competitive terms, contact EXIM today to request your free consultation with a Trade Finance Specialist: hbspt.cta._relativeUrls=true;hbspt.cta.load(421983, 'fd7b31ff-607f-4afc-9c5f-604705724249', {}); EXIM Supports U.S.-based Service Providers in the Global Marketplace Part 2, Manufacture Your Way to Global Sales with EXIM Export Credit Insurance, Why Some EXIM Export Credit Insurance Claims are Denied, Celebrate Labor Day with "Made in the USA" products, 7 Red Flags: Protecting Against Fraud in Trade Finance, Suhail Karim Beg, Business Development Specialist, Office of Small Business. The term red flag is a metaphor. The method used to detect problems with an investment opportunity depends on the research methodology an investor, analyst, or economist employs. This led to a large number of trade credit insurance claims as many fuel traders and producers are traditional buyers of trade credit insurance. Requests for quotes or product descriptions are made to obtain and misuse a legitimate supplier's letterhead or business logo. Gaining a solid understanding of and being able to read financial statements helps ensure success when investing. April 11, 2017 Suhail Karim Beg, Business Development Specialist, Office of ... the first thing you should do to protect yourself against non-payment risk is speak with an EXIM Bank Trade Finance Specialist on obtaining one of our affordable export credit insurance policies. Financial statements are falsified to improve cash flow, increase sales or accounts receivable, or meet EXIM Bank published credit ratios. Identification documents of borrowers or guarantors appear altered or have expired. Bubbles are generally characterized by a rapid increase in asset prices and are deflated after massive sell-offs. Heavy equipment without Vehicle Identification Numbers or serial numbers. As the OW Bunker case made clear, the first thing you should do to protect yourself against non-payment risk is speak with an EXIM Bank Trade Finance Specialist on obtaining one of our affordable export credit insurance policies. These red flags may indicate some financial distress or underlying problem within the company. Discrepancies exist between tax statements, credit references, sales receipts, or in discussions with parties. Invoice does not describe type or quantity of goods, or product descriptions are vague and conflict with bills of lading. More to the point is that new markets present new challenges for all parties. Losses stemming from large scale internal fraud triggered a quick and unexpected bankruptcy. The offers that appear in this table are from partnerships from which Investopedia receives compensation. There are many different methods used to pick stocks and investments, and therefore, many different types of red flags. If not remedied in a timely fashion, investors will question why the company is unable to sell its inventories and how this will affect profits. . Economic red flags often suggest problems looming for the economy. and errors! EBITDA – Earnings Before Interest, Taxes, Depreciation, and Amortization, How Investors can Perform Due Diligence on a Company. The impression of a legitimate company or trade transaction can readily be made requiring both insurers and insured to remain vigilant. They gain the aura of authenticity by establishing a legitimate company in their respective country and executing several transactions on a relatively small scale over a period of one year. It is generally used as a warning or a cause for concern that there is a problem with a certain situation. Alternately, the fraudster may order multiple small deliveries that total a much larger amount. Multiple changes in the financed amount requested, description of goods needed, or suppliers and exporters. Supplier address or phone number cannot be publicly verified. For example, large amounts of cash on hand could mean that more accounts are being settled than work received. Consumers begin to curb their spending, holding off on purchasing things like furniture, clothing, food, electronics, and appliances. Sometimes the buyer plays the long-game. EXIM has been in the business of being your official export credit agency for over 82 years.