How to Avoid Payment Scams During the Holidays

By Pedro Hernandez | Posted November 21, 2017

There's no good time to get by scammers, but the holidays are possibly the worst.

According to the latest SMB & Money Survey from online payments provider WePay, conducted by Survata, 20 percent of a small business's annual revenue is earned between Thanksgiving and December 31. For businesses that sell goods, as opposed to services, that figure rises to 28 percent.

With so much on the line in such a short amount of time, payment problems and fraud during the holidays can have some serious effects on a company's finances.

Twenty-one percent of respondents dealt with late payments toward the end of 2016. Seventy percent said they experienced a severe business issue during the same period.

Among those who suffered fraud, 44 percent rated the severity of its impact at a 9 or 10 out of a 10-point scale. Forty percent who had to deal with chargebacks—fraudulent or disputed transactions that businesses are forced to cover—reported the severity of such incidents a 9 or a 10.

Twenty-six percent lost money to fraud and chargebacks. One business, out of the 515 surveyed, reported fraud loss that surpassed $1 million.

How can small businesses avoid such a fate? John Canfield, vice president of risk management for payments company WePay, has some advice.

Watch for 419 Scams

"Small businesses should be watching out for the modern 419 scam. What used to be poorly-written emails that promise a share of a large sum of money as a reward for a seemingly innocent action have evolved into more sophisticated and plausible stories," said Canfield. "This shows how much more adept fraudsters have become at attempting to fool small businesses."

This is how a 419 scam goes down.

"The modern 419 scam starts with a fraudster approaching a small business via email requesting to work with them. The fraudster pays for the project in advance via a stolen credit card, including an extra amount they want the business to pay a third-party subcontractor via wire transfer (which is, in fact, the fraudster)," Canfield said.

"With the nonrefundable wire transfer successfully paid to the fraudster, the business will also find the initial stolen credit card payment charged back as fraudulent – leaving them with significant debt."

Avoiding Fraud: A Game Plan

"As a small business, it is always safer to meet or speak with a prospective client before agreeing to any work. Be cautious if you find that someone wants to work with you from far away when they could work with other businesses closer to their location," Canfield advised.

"Be wary of any outreach that asks for money and/or personal information. And finally, while it may be good for your business, do not be blinded by large, out-of-the-ordinary transactions," Canfield added.

Don't Wait for Fraud to Occur, Prepare for It

"A big mistake is to say, 'I don't have a fraud problem now, so I'll just deal with it when it happens.' The problem with that mentality is fraud can seriously hurt your business in an instant if you are not prepared," Canfield said.

"Protecting your business from fraud is similar to preparing for a natural disaster; it may not be imminent, but you should have supplies ready in the event it occurs," said the WePay executive. "It is important to have a trusted payments partner integrated with your business to monitor fraudulent activity and be ready to take action."


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