Identity & Fraud

8 Ways to Know Who Your Small Business is Doing Business With

8 Ways to Know Who Your Small Business is Doing Business With

October 17, 2023 | David Adams

In today's rapidly expanding small business marketplace, the numbers speak for themselves. Over the past three years, there has been an astonishing surge in new business applications. There are a staggering 14.8 million applications compared to 10.2 million in the preceding three years. This remarkable growth reflects the business world’s dynamic and entrepreneurial spirit. Yet, amidst this thriving environment, one critical challenge persists:

Determining the legitimacy of these businesses.

For B2B service providers, establishing the authenticity of potential business partners before extending lines of credit or providing services is of paramount importance. Unfortunately, in an era where impersonation and fraud have become more-and-more sophisticated, distinguishing between legitimate businesses and nefarious actors posing as credible entities is no small feat.

While many B2B providers conduct their due diligence by checking with the secretary of state or consulting the Office of Foreign Assets Control (OFAC) list to ensure that the business and its principal are not on any watchlists, these steps alone are not enough to guarantee the legitimacy of a business or to protect against potential fraud.

To protect your interests in today's complex business landscape, it's essential to approach business verification from a multifaceted perspective.

Here are several key aspects to consider when assessing the authenticity of a business:

1. Identify the principal. Start by examining the individuals behind the business. Who are they? What is their background and track record in the industry? Understanding the people steering the ship is a crucial aspect of business verification.

2. Consider geographical location. Take a closer look at the geographical aspects of the business. Where is the principal located, and where is the business physically situated? Discrepancies in these details can raise red flags.

3. Monitor OFAC sanctions. Continue to check OFAC sanctions. Ensure that the business and its principals are not involved in any sanctioned activities or individuals/entities. This step helps mitigate risks associated with potential legal issues.

4. Review ownership history. Investigate whether the business has recently changed ownership. Frequent changes in ownership might indicate instability or potential issues that need further scrutiny.

5. Check financial health and transactions. Analyze the financial health of the business. Assess cash flows, transactions, and payment histories. A thorough examination of financial records can reveal any irregularities or potential financial risks.

6. Examine references and reputation. Seek references and investigate the business's reputation within its industry and among its peers. Word of mouth and industry connections can provide valuable insights.

7. Evaluate legal compliance. Ensure that the business is compliant with all relevant regulations and licensing requirements. Failure to meet legal obligations could be a warning sign.

8. Perform industry-specific checks. Depending on the industry, consider specific checks and verifications relevant to your business sector. Each industry may have its own unique risks and compliance requirements.

When it comes to business verification, a holistic approach is essential. Relying on a single source or a cursory check is inadequate in today's complex and ever-evolving business landscape. To protect your interests and make informed decisions, you must dig deeper and consider a range of factors.

Knowing whom you're doing business with is not only a smart business practice but also a safeguard against potential fraud and financial pitfalls. In this era of rapid business growth, vigilance and thorough due diligence are your best allies in ensuring successful, secure, and legitimate business relationships. Contact us and learn how to vet new businesses.

David Adams

David Adams

Head of Commercial Product Marketing

A seasoned technology expert, David Adams has spent his career specializing in SaaS based technology and high growth markets. With Equifax, as the Head of Commercial Product Marketing, David is responsible for the Go-To-Market strategy for the entirety of the commercial portfolio, from marketing, to acquisition to man[...]