Acts of fraud are in every industry, even produce.
One such type of fraud that is no stranger to the produce industry and has become more prevalent over recent years, and even months, is what is known as a “bust-out.”
In financial services, bust-outs are often described as a consumer applying for and using credit cards in his or her own name (or an alias). He/she then makes a few payments to build a good credit history with the aim to obtain greater and/or additional credit. Finally, once achieved, the perpetrator maxes out his/her credit availability with no intent to repay and abandons the credit accounts.
In B-2-B, it essentially works the same.
A buyer builds credit history by paying within terms. The seller becomes more confident and increases credit limits. The buyer makes larger purchases under fraudulent pretenses, and then disappears.
Do we really see “bust-outs” in produce? Unfortunately, yes.
Bust-outs are a multibillion dollar a year problem in the financial industry. In produce, it’s estimated that millions of dollars are lost to bust-out schemes each year, with sellers typically losing hundreds of thousands of dollars on single transactions.
Bust-outs and other fraud types are a very small percentage of produce commerce but it’s here, it’s present today and will be here in the future!
Observed ‘bust-out’ characteristics by Blue Book Services
A new, or newer Blue Book listing, with ownership and staffing reflecting no or limited industry experience are base characteristics of bust-out case studies observed by Blue Book Services.
In addition, one, or a combination of the below list of characteristics have been present in situations in which a company appears to have intentionally financially-harmed a produce seller or service provider.
• New or newer Blue Book listing.
• Ownership and staffing reflect no or limited industry experience.
• Improperly licensed.
• Fictitious addresses and shipping locations.
• False business start date.
• Generic email address domains and website.
• Illegitimate references.
• Rating line concerns.
Limiting exposure of ‘bust-out’ fraud
Know the buyer – properly vet new business relationships and continue to closely monitor newer customer account behavior. Bust outs and other fraud types evolve and are constantly on the move, and likely, will change how they present themselves, possibly after reading this.
Stay committed and remain consistent when applying company credit policies and procedures. Blue Book Online Services, too, will keep you in the know, and reduce trading risk.
Bust-out victims provide this advice – “wait for wires or checks to clear before releasing product!” Victims also indicate perpetrators pledge wire transfers or indicate that the check is in the mail and if/when received, are either stopped or do not have sufficient funds.
Bust-out fraud is an act to intentionally defraud, steal, inflict financial harm on credit extenders. If you are witness to such an act, share the experience with Blue Book Services and report it to the United States Department of Justice.
Please contact a Blue Book Services associate with any questions.
