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HMRC internal manual

Excise Due Diligence Condition guidance

Risks: terms of contract, payment and credit agreements

Businesses should consider the terms of any proposed contracts, payments and credit agreements before entering a business relationship. Where these are unusual, this may be an indicator that the trade is linked to fraud. In such cases, the business should establish the level of that risk. The amount and type of testing necessary will depend on the nature and level of the proposed trading arrangements. Where the business is satisfied that the supply is not directly linked to fraud and decides to trade, it may attempt to reduce risks by agreeing more appropriate terms and conditions for it. Risk indicators include:

  • a supplier or customer insists on dealing in cash, especially where the deal is a high value one
  • cash payments are made using money couriers
  • offers of credit appear to be outside normal business practice (payment terms are normally 21, 31 or 45 days, high risk transactions may have payment terms for periods as short as 48 hours)
  • a seller requests the buyer to make payment to an account or person which does not appear to be linked to the seller, or other unusual payment arrangements are identified
  • a valid pro-forma or purchase invoice is not (or will not be) provided
  • the circumstances of the trading arrangement seem false or contrived; for example, a supplier provides onward supply chain details for the buyer to sell goods onto, or presents a contract with no risk of financial loss to the buyer because it contains compensation provisions where trading losses occur.

 

Please note that this list is not definitive