Can Your Small Business Afford Any More Credit Card Losses

The easiest way to improve your bottom line: Prevent losses due to credit card fraud.

Credit card fraud has been a growing economic concern for years. However, it becomes a crisis for small business owners when the rightful card holder discovers the fraud and the card issuer cancels the transaction (a charge back). In some cases, the merchant (that's you) absorbs the charge back.

The basics of a chargeback include: 1) The theft of a credit card; 2) The thief pays for a product with the stolen card (typically the product is re-sold for cash); 3) The card issuer, the card-holder or the merchant absorbs the loss.

For those business owners operating a bricks and mortar shop, minimizing credit card losses is straight forward - Check ID!

For online retailers it's not so straight-forward. If you ship products paid for with a stolen card, there will be a charge back and you will suffer the loss.

Start by contacting your merchant services provider and ask them what process you should be following to prevent fraud. Then implement a basic policy and publish it on your website. For the small, start-up business the surefire method of preventing credit card fraud requires basic vigilance: If the transaction seems unusual, verify the buyer's identity. A slightly more robust process includes a comparison of the billing address and the shipping address. They should match.

In a small business, decisions such as dealing with credit card fraud will be applicable depending on your specific business. Take a practical approach. Perhaps screen only high dollar transactions. But remember, at some point a credible business has a policy for fraud prevention. The worst case scenarios? Losing money. Or your merchant provider canceling your processing services.

I suppose you could return to the gold standard. But in this case, following the rules may offer the easiest path.