Fighting fraud in wholesale finance: Leveraging technology for early detection and risk mitigation

Wholesale finance, the credit lines lenders extend to dealers to purchase and hold vehicle stock, is the lifeblood of auto retail. But with that lifeblood comes a persistent infection risk: fraud.

Most dealer fraud is opportunistic, not premeditated. A dealer under cash-flow pressure “borrows” from the lender by failing to clear a sold unit, hoping to fix it tomorrow. Too often, tomorrow never comes. Without strong detection, fraud can run for months and snowball into multimillion-pound losses. 

The fraud landscape in UK wholesale finance

Wholesale finance is built on trust, and that trust creates vulnerabilities that fraudsters exploit. Lenders should name and target the known typologies:

• Selling Out of Trust (SOT): Dealers sell financed vehicles but fail to remit payment to the lender.
• Double-flooring (Multiple financing): The same asset is pledged to multiple lenders.
• “Fresh air” financing (Phantom assets): Funding for vehicles that don’t exist (fictitious stock).
• Document fraud: Manipulated VINs, forged invoices, and doctored serial numbers.
• Collusion and overvaluation: Inflated invoices or collusion with third parties to approve non-arm’s-length deals.

Weak points, predictable audits, siloed data, and one-way integrations create blind spots. Once a dealer learns where the cracks are, the temptation to exploit them grows.

Why early detection matters

Across industries, fraud schemes typically last 12 months before discovery, and losses compound the longer they run.

In wholesale finance, where individual assets can be high-value, losses can escalate quickly in weeks.

The lesson is simple: Retrospective audits aren’t enough. If lenders only analyse data every quarter, they risk being three months behind a dealer who’s already siphoned off millions. Real-time monitoring and proactive risk scoring are no longer optional; they’re essential.

Tools and techniques to fight fraud

1. Technology and data analytics

• Real-time stock presence checks: Systems that track inventory via GPS or RFID can confirm whether financed cars are physically present.
• Tight DMS-finance integration: Connecting dealer management systems with finance platforms allows anomalies (e.g., unusual sales spikes, repeat payment delays) to be flagged immediately.
• Intelligent Document Processing (IDP): Uses AI to automatically extract and verify information from key documents (like invoices, titles, or VIN records), catching inconsistencies or forgeries early and preventing document-based fraud.

2. Break down silos

• Inter-lender intelligence: Fraudsters exploit gaps. Lenders must integrate data across departments and share intelligence across the industry. Participation in Cifas’s National Fraud Database (NFD) to file and search cases in real time enables lenders to flag bad actors so they can’t simply jump to another financier.

3. Behavioural insight (high-signal red flags)

• Payments: Large or unusual cash remittances; repeated line-increase requests; pattern of late/partial payoffs.
• Engagement: Evasive behaviour around unscheduled audits; reluctance to share disposal proof or HPI checks.
• Stock flow: Unusual spikes in invoicing/stocking around month-end or before audits; frequent “at auction”/ “off-site” claims without independent verification.
• Overvaluation: Repeated invoicing from the same supplier with no independent verification.

4. Skilled people and disciplined processes

• Surprise audits: Unannounced floor checks are harder to game than calendarised visits.
• Forensic verification: Independently validate off-site/auction stock and reconcile to transport logs and auction manifests.
• Dealership-level KYC: Due diligence on principals, directors, and related entities at onboarding and during periodic refresh.
• Fraud-aware culture: Training staff to question inconsistencies and escalate suspicions quickly is critical.

The fraud-fighting toolkit

To combat fraud, wholesale finance lenders must adopt a comprehensive approach that includes technology, skilled personnel, and well-established processes. Here’s a breakdown of essential tools and strategies to tackle fraud effectively: 

Forward-Looking Recommendations

The future of wholesale finance fraud prevention lies in predictive and proactive defence. Lenders must move from after-fact detection to real-time intelligence.

• Balance automation and human judgement: Algorithms can flag anomalies, but seasoned wholesale professionals provide the judgment call.
• Collaborate across the ecosystem: Regulators, lenders, and dealers must share intelligence and align on stronger standards.
• Embed fraud detection into everyday operations: The goal is to make fraud prevention part of the workflow, not an afterthought.

Conclusion

Wholesale finance rests on trust between lender and dealer. But trust without verification is fragile. Fraud, whether opportunistic or organised, poses a systemic risk that can devastate both lenders and honest dealers.

By combining technology, behavioural insight, and skilled oversight, lenders can detect fraud early and discourage it before it begins. The message to the market is clear: robust systems not only catch fraud, but they also deter it.

NETSOL: Empowering wholesale finance with advanced fraud detection solutions

At NETSOL, we understand the challenges faced by wholesale finance institutions in managing fraud risks. Our Transcend Finance platform leverages cutting-edge technologies to help lenders detect and prevent fraud early.

With Transcend Finance, lenders can:

• Optimise risk management: Leverage data-driven insights to prioritise high-risk accounts and focus resources where they are most needed.
• Ensure operational transparency: With robust monitoring systems in place, financial institutions can ensure that all dealer activities are transparent and compliant with regulations.
• Automate document verification: Use AI-powered Intelligent Document Processing (IDP) to instantly extract, classify, and verify data from invoices, contracts, and VIN records, flagging discrepancies before funds are disbursed.
• Boost transparency across partners: Give dealers and OEMs access to a shared portal showing floorplan usage, stock status, and settlements. When all parties see the same information, there’s no hiding of funded assets.

Don’t wait for fraud to expose gaps in your operations. Equip your wholesale finance business with real-time visibility, intelligent risk scoring, and audit-ready workflows.

Talk to NETSOL today to see how Transcend Finance can help you detect fraud faster and protect your portfolio.