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HMRC internal manual

Excise Due Diligence Condition guidance

Risks: financial health of the business they will be trading with

Businesses covered by the due diligence condition should take reasonable action to test their intended or continuing transactions for financial health risks. They should assess the risk of the transaction and consider whether it may be linked to fraud.

It makes commercial sense for businesses to test their customer, supplier or trading partner’s financial backing before agreeing to credit terms or accepting /placing large orders to ensure they will be paid or that orders are likely to be met. Where there are doubts over being paid they may simply ask for payment upfront. Where there are doubts over suppliers they may decide to trade elsewhere.

Businesses should carefully consider instances where high-risk indicators of fraud are found and take reasonable action to reduce the chance of becoming involved in a high risk supply. In many cases this may mean not entering into the transaction. Where the business reasonably decides to trade with financial risks present, then we would expect it to quantify, monitor and re-evaluate the risk at regular intervals and demonstrate that a link to revenue fraud was unlikely. Financial health risk indicators include where the business intended to be traded with:

  • has no or poor credit ratings but is apparently able to finance or offer substantial deals
  • has high levels of debt
  • will be buying high value goods on extended credit
  • will be selling high value goods without any likely means to acquire them
  • is offering to supply high value goods on credit terms but without the apparent financial strength to fund that credit
  • is a new business with little or no trading history
  • will not supply reasonable assurance on ability to pay
  • bank details appear to belong to a third party
  • has little or no fixed assets.