The importance of credit investigation showed by an investigation case

Written by an experienced investigator, this article describes one of those typical cases handled by him. It shows the effectiveness and importance of credit investigation for prevention beforehand.

Business activities are becoming frequent with the development of market economy in recent years. Commercial trade and commercial investment are doubling even increasing by several ten times. It happen mistakes in business handling, and some illegal businessmen are taking every opportunity to gain profit. Frauds appear correspondingly. An effective commercial investigation will help reduce the mistake and fraud in business activities, for commercial frauds would be found out quickly.

In June 2000, one company in Nanjing sent a letter to Steele, saying it invested 50 million Yuan in one building project development and then wanted to transfer it. To avoid mistake, it demanded Steele to conduct due diligence on two real estate developers (A and B) so as to make good choice.

After careful and thorough investigation, the credit situations of A and B were made clear and a comprehensive report was provided. The investigation result showed A was a project company named with some big building. It had no business in real estate development and management. As a private company, its registered capital of 20 million Yuan came from the transformation of debt into shares. In addition, all of its capital had been invested in the building project. And the building had been held up because of lack of following-up fund. A couldn't get support from bank because it had no right to use the land for transfer fee not being paid. Until then, A owed more than 10 million Yuan to construction institutions. The owner had taken its offices back because it couldn't afford to pay the rent, and there was no fixed office location at that time. Moreover, the investigator found an important clue that the boss of A got on well with one of the vice-presidents of the superior administration of the company in Nanjing, the trustor of this case. He attempted to sell real estate to get profit illegally with the help of this vice-president.

Co-established by local labor administration, real estate administration and company employees, B turned out to be a limited-liabilities company with registered capital of 5 million Yuan. Employees held as much as 80% of total stocks. Although small, B was running well. It paid total taxes in time and employees could get a dividend of 30% annually. It was preparing actively to take the project transferred by the Nanjing Company. The design plan had been already submitted to local design bureau for approval. Future partner had been found, too. B had no debt other than short-term bank loan and got a good credit reputation, for it paid back in time the bank loan.

According to the investigation result provided by Steele, the company in Nanjing made decision in a short time about the company to transfer and was satisfied with the transfer result.

The above-mentioned case showed that the leaders of Nanjing Company had a consciousness of prevention before action. Risks are everywhere in economic transactions. What we can do is to prevent the risks to the greatest extent, to reduce the risks to the lowest level. It is better to prevent beforehand than to compensate afterward. The first step of prevention is to do credit investigation. It can help reduce the blindness and risks in operation, meanwhile avoid wrong decisions so as to ensure the company to sustain its position in the marketplace. Therefore, the credit investigation in business security investigation is called in foreign countries "a conqueror of business fraud".