Do you know how much fraud costs the UK economy each year? The 2023 Annual Fraud Indicator (AFI) report, researched and published by Crowe, Peters & Peters and University of Portsmouth, found that fraud costs the UK economy £219 billion a year. In 2018, the figure was £110 billion a year.

Fraud can have a significant impact on businesses of all sizes, but smaller business may feel the impact harder and possibly be put in a position where the survival of the business is under threat.

We look at how fraud can impact a business in the short and long term:

• Financial loss within the business

The most obvious and often visible impact of fraud is the financial loss. Whether it’s a fraudulent order from someone pretending to be a client, a fake request to change supplier payment details, or simply employees or management putting their ‘hand in the till’, the loss is there to see on the bank statements. Cash has unexpectedly gone out or expected cash has not come in.

In the short-term, this could impact your ability to pay suppliers, and you may end up in arrears or outside of your payment terms. If left to fester, the financial strain could continue to grow, potentially jeopardising relationships with suppliers or the ability to fulfil customer orders.  

• Devalued reputation externally

Fraud isn’t just a financial setback; it’s a breach of trust and the reputation of your organisation could be blighted for some time. In the medium term, fraudulent activity will be detailed and explained in your audit and accounts. This means stakeholders or potential investors in the business will see what’s going on and start to ask questions or raise concerns.

In severe cases, news of uncovered fraud can be spread quickly through digital channels, reaching customers easily and potentially impacting their choice whether to buy from you in the future.  

Potential sources of finance you may be looking to, whether to bridge the gap in cash flow or to help you grow the business, may also do further due diligence to evaluate if this would be a wise option for them.

• Unsettled culture internally

The impact of fraud can also ripple throughout the organisation itself. If the fraud has taken place internally, the atmosphere within the company could change from one of trust and support to suspicion and uncertainty. Colleagues may be wary of working with one another reducing productivity and informal communication may break down. Teams may also feel under the spotlight and at risk of being wrongly accused of involvement putting them on edge and suffering with low morale.

This change in culture may take some time to recover. In small family-owned businesses, the repercussions could spill over into home life as well. If you’re needing to recruit, awareness of fraud and the tainted culture may also put people off joining or staying long-term.

• Limited options to recover

The effects of fraud can be felt long after the activity occurred. If the unforeseen circumstances have significantly impeded cash flow, then it’s likely your business will fall into arrears with key suppliers. As we’ve highlighted before, some suppliers may be able to help you with extended payment terms, but this probably won’t be offered as a long-term agreement. It also won’t help you to address your debts in the long term.

Are you concerned about how fraud can impact a business?

If the debts are increasing and starting to become unmanageable, they it’s time to seek appropriate advice. Turning a blind eye to problems that exist and aren’t improving will only place you and the business in a more difficult situation. More importantly it will limit your options for recovery.

We always advise businesses with financial difficulties to seek advice as early on as possible. By doing so it increases the chances of having many options to recover as opposed to just a few, or any.

If you’re keen to keep the business going, act now to give your business the best chance of survival.

We’re always here to help. Call 0808 196 8676 or email help@trusolv.co.uk and we’ll get in touch.