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.

Beware of Business to Business Scam

The #1 fraud scam* in the US is the fake/forged check. And it's always some variant of this: Receive a check, deposit it, make a check from your account and send it to the fraudster.

Instead of dying out because every Craigslist buyer has "heard that one before", this scam is gaining traction in the B to B market. And for much larger dollars. The average consumer scam of this type is a few thousand dollars. Today, business owners are being scammed out of tens or even hundreds of thousands with this scam.

How the scammer targets your business:

1) A caller from out of your geographic area requests professional services from you. Say you are a web developer or an attorney. The caller may even be a referral from a legit professional (who isn't aware of the scam).

2) You receive a check from the scammer. You deposit it in your business checking account. Your bank may allow you to immediately wire those funds out. Or, even in the case your bank holds the funds, you may have other "collected" funds that can be wired out. The scammer convinces you to write them a check (under some pretense). You are out the money. The check is a fake.

Prevent this fraud with a few simple steps. Even if you do some research and feel comfortable, keep in mind, these high-stakes scams can be elaborately developed. Trust, but verify. Contact your bank and request to be notified when the check is collected. When in serious doubt, contact your lawyer or financial service provider.

*According to the National Consumers League, founded in 1899