A positive credit check, a supposedly familiar customer, and a plausible order—and yet this can still result in significant financial loss. That’s because professional order fraud often strikes where companies actually feel well-protected.
What many companies don’t know: Order fraud is not covered by trade credit insurance, but falls under the scope of fidelity insurance.
When a Supposedly Secure Order Turns Into a Major Loss
An electronics manufacturer receives an order for lamps and lighting fixtures from a well-known department store chain. The credit check comes back positive. However, during order processing, unusual changes are made to the shipping addresses. The goods are shipped nonetheless—worth more than 400,000 euros.
After the invoice is issued, the actual department store chain denies ever having placed an order. The supposed buyer was a fraudster who had posed as an authorized contact and diverted the goods.
The key consequence: Since there is no valid claim against the actual customer arising from the fraudulent order, trade credit insurance does not apply in this case. Fraud insurance, on the other hand, can cover the resulting financial loss within the scope of the agreed-upon insurance terms and the insured amount.
This example illustrates why a thorough credit check and existing credit insurance alone are not sufficient to cover all risks in business transactions.
Two Types of Insurance: Two Different Purposes
Trade credit insurance and fidelity insurance protect against different risks. They are not substitutes for one another, but rather complement each other in specific ways.
Trade credit insurance – Protection against bad debt
It protects insured receivables, for example, if a customer fails to pay due to insolvency or unwillingness to pay and the agreed coverage requirements are met.
Embezzlement Insurance – Protection Against Financial Losses Due to Fraud
It can cover direct financial losses resulting from external acts of fraud, such as:
- Order and identity fraud
- Social engineering and fraudulent order initiation
- Tampered invoices and payment redirection
- Fraudulent changes to shipping or payment instructions
- Certain internal criminal offenses, such as embezzlement or unauthorized transactions by employees
Which risks are actually covered depends on the specific terms and conditions and the agreed scope of coverage.
Our recommendation: Consider risks throughout the entire business process
Fraud can begin as early as the customer acquisition phase, continue through order placement or shipping, and only come to light during invoicing or payment. That is why at Hörtkorn, we consider not only traditional credit risk but also the question of what fraud-related financial losses fall outside the scope of existing credit insurance.
The specialists on our Hörtkorn Credit team help you systematically review your existing coverage, identify potential gaps, and assess the need for supplemental protection through fidelity insurance. The goal is not to replace your existing insurance policies, but to sensibly supplement your risk management—tailored to your business processes, your individual risks, and your actual coverage needs.
Is your company also protected against buyer fraud?
If you’ve already taken out trade credit insurance, that’s an important component of your risk management strategy. But does it also clarify who is liable for the loss if a fraudster places an order in someone else’s name and receives your goods? Let’s work together to determine whether your current coverage also addresses such fraud risks.
Please contact your Hörtkorn business advisor or the specialists at Hörtkorn Credit.
We’d be happy to provide you with personalized advice and show you how you can effectively supplement your insurance coverage.
