How to Prevent Fraud Against Your Small Business

Fraud against small businesses occurs frequently and in many forms. According to surveys 28 percent of small businesses experience fraud every year. A few examples include shipping scams, chargeback fraud, phishing emails and invoice fraud. Learn to identify some common forms of customer, vendor and third-party fraud and identify steps the small business can take to prevent.

Shipping Scams

Common scams involve shipping. Several variations exist, including the following.

  • The scammer requests you use their shipping account because they can get a discount, service is more reliable, etc. If you agree and use the requester’s shipping account, they easily can contact the shipper and reroute the order to another address. The buyer then asks for a refund because they did not receive the order. Unable to prove that the buyer received the order, you lose the product, the shipping costs and your money. How to prevent this scam: Only use your shipping account. If a customer asks you to use their shipping service, review the order carefully. Ship to the address on the order.
  • A buyer places an order with an incorrect or fake shipping address. When the shipping company is unable to deliver the package, the buyer contacts your shipping company and asks they send the package to the correct address. The buyer then files a complaint for not receiving the item. The buyer keeps the item and money. How to prevent this scam: Contact your shipping company to block buyers from rerouting. Validate the address before shipping. Only ship to the address on the order.

Chargeback Fraud

The term “chargeback” refers to the return of funds to a customer that is initiated by the issuing bank at the customer’s request. Fraudulent chargebacks involve a customer paying for goods or services via credit card and then requesting a chargeback, despite receiving the goods or services. They also might falsely claim the purchase was not authorized. How to prevent this scam: Use a secure ecommerce platform and a reputable payment processor that havs seller protection and fraud detection features in place, such as address verification services (AVS).

Invoice Fraud

The fraudster submits professional-looking Invoices for payment for goods not provided or services not rendered. This scam may involve accomplice staff or not.

How to Prevent Scams

An educated workforce is the best prevention measure. Train staff to spot possible scams. Teach them not to share information externally and not to click on unknown links. A good resource is the FTC’s dedicated site and materials (

Verify all invoices before payment. Implement clear processes for accounts payable. Review invoices carefully and be sure the goods or services were received.

How to Spot Scams

Learn to recognize some of the common telltale signs of scammers:

  • They pretend to be someone you trust or associated with someone trustworthy, like a government agency.
  • Scammers express a sense of urgency, rushing you into making a quick decision.
  • Scammers use intimidation, preying on fear. For example, they warn of some impending crisis such as a website domain expiration.
  • Scammers use untraceable payment methods.

Of course there are many more types of scams and forms of fraud committed by employees as well as strangers. Remain vigilant and don’t hesitate to question.

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