Building a Credit Fraud Prevention Policy

A credit policy answers whether the customer can pay. A fraud policy answers whether the customer is who they claim to be and intends to pay. They are different questions with different controls — and folding them into one document usually means one of them gets neglected.

This piece covers how to build the fraud policy as its own document, wired into the credit workflow.

Document structure

1. Purpose and scope
2. Definitions: what the company treats as fraud, attempt and suspicion
3. Roles and responsibilities by department
4. Preventive controls by process stage
5. Detection rules and severity levels
6. Suspicion handling workflow
7. Internal case file
8. Communication and training
9. Metrics and review

Preventive controls by stage

The shipping stage is the most forgotten and one of the most effective: it is the last point at which the goods have not left.

Detection rules and severity

As with risk alerts, gradation keeps everything from becoming an emergency:

• Low — a single isolated signal. Log and monitor.
• Medium — two or more combined signals. Manual review with additional checks.
• High — a characteristic pattern (new entity + high value + urgency + different delivery). Suspend the order and verify fully.

The signal list is in red flags in credit applications.

Suspicion handling workflow

1. Flag raised by a rule, an analyst, sales or shipping
2. Temporary suspension of the order, with no reason communicated to the applicant
3. Checks defined by severity level
4. Decision: release, release with reduced terms, or decline
5. Log the case internally regardless of outcome
6. If confirmed, preserve evidence and involve counsel

Step 5 is what makes the policy cumulative: logged cases feed the next detection.

The internal case file

At minimum it should hold: the entity and individuals involved, addresses (registered and delivery), phone numbers, emails, the pattern observed, the outcome and the date. Checking that file should be a mandatory step when underwriting a new customer.

Many attempts reuse elements across different entities — the same delivery address, the same phone, the same officer. Without your own file, every attempt looks novel.

Roles

• Credit — owns the rules, decides on suspicions, maintains the case file
• Sales — reports contact impressions without judging the case
• Shipping — checks the delivery address and stops inconsistent shipments
• Finance — validates banking changes through a known channel
• Legal — handles remedies and advises on evidence preservation
• Leadership — sets appetite and receives periodic reporting

Reporting a suspicion cannot carry a commercial penalty. Where reporting delays a sale and hurts quota, nobody reports.

Metrics

• Attempts detected and blocked in the period
• Confirmed fraud losses, in dollars and count
• Share of orders suspended on suspicion, and confirmation rate
• Average time to clear a suspicion
• False positives: legitimate sales lost to excessive control

That last metric is what keeps the policy balanced. Fraud prevention that never measures false positives tends to tighten until it strangles the operation.

Review

Annually, and after every confirmed case. Each case should force one mandatory question: which control failed, and what rule prevents the repeat? The credit policy should reference this document without absorbing it.

What to take from this

Treat fraud prevention as its own policy, with controls at every stage — including shipping and post-sale — severity levels, a defined suspicion workflow and an internal case file. Measure false positives too: a control that blocks legitimate sales has a cost, even when it never shows up.