Just when you thought there couldn’t possibly be any more ways left for scammers to dupe individuals or businesses, another method makes its way into the news. Small businesses, and especially those that have just started out, are sitting ducks for scammers. Some of the most common small business scams today include variations on phishing, invoice fraud, directory scams, and investment scams.
The trick is to be vigilant and to ensure you have controls in place to protect your bottom line and reputation.
1. The Overpayment Scam
The overpayment scam preys on a business owner’s desire to turn a profit. The scammer will usually contact the business directly, inquiring about buying expensive goods or services or even requesting to donate to charity. They will then send a check that exceeds the cost of the goods, and ask the business to wire them the difference. Of course, most businesses would not do that until the check has cleared, and here comes the crafty part. Scammers will request the check to be cleared using a particular escrow company. The escrow company is also part of the scam. The realistic-looking check will eventually bounce, and the business will be out of pocket for the goods and the difference.
How to avoid it: Always request full customer details, including name, address, and telephone number. If you receive a check for payment, always use your own escrow company, and never wire funds at any time.
If the customer is another business, do some research on the company first—check the business’s credit report (you do not need their permission to do this) and make sure they’re in good standing. You can search for a business credit summary report on another business here for free.
2. The Fake Invoice Scam
Small businesses are at risk for invoice fraud, but it’s hitting large organizations hard too, according to a report by cybersecurity expert Brian Krebs. An urgent invoice is sent through to the accounts department requesting immediate payment. It may mention goods or services, and scammers will often do their research to make their invoice look as legitimate as possible, even going so far as to use a real employee’s name. In most cases, the accounts department will query the invoice, but many do get paid. Scammers will continue to target small businesses that repeatedly pay up, with the potential for big losses.
How to avoid it: A watertight invoicing system is critical for all small businesses. All invoices should be signed off and approved by an authorized party before being paid. Every request for payment must be thoroughly checked. A multi-person approval system will help to streamline and tighten the process.
3. The Directory Scam
The Federal Trade Commission (FTC) has warned businesses that they have seen a steady increase in directory scam cases. In June 2015, the FTC was successful in halting and fining a prolific group of directory scammers in Canada, but the scam still continues to cause small businesses problems.
In this situation, scammers will contact small businesses claiming to be updating or confirming the company’s contact details in their business directory. The business directory is usually nonexistent, but the employee who picked up the phone will usually agree to updating the listing, worried that the company may lose business if it isn’t. Fast-forward a few days later, and the company will receive invoices for hundreds of dollars. If the company doesn’t pay, it will be threatened with being removed from the directory or receiving collection calls and court notices.
How to avoid it: Keep track of where your business is listed and whether you pay a premium for the listing. The FTC also suggests verifying the business that invoiced you. If you are being harassed to pay for a bogus listing, file a complaint with the FTC and Better Business Bureau, and consider reporting it to your state attorney general.
4. The Phishing Scam
Phishing scams are becoming increasingly harder to identify, especially when scammers can spoof real email addresses within an organization. The email received may look like it legitimately came from a trusted source, and the link it contains can seem safe to open. Unknown to you, the link downloads a virus onto your computer and retrieves sensitive information such as company bank details and customer credit card account details.
The effect on a small business can be huge. You have just leaked data not only about your own company but about your customers, too. Data leaks in business can spell disaster in the form of wiped-out bank accounts and data protection lawsuits from customers.
How to avoid it: Always check emails carefully, including the email address and the contents. If you don’t recognize the sender, exercise caution. By hovering your mouse cursor over any link, you can see a preview of the address the link would take you to. It is also a good idea to invest in anti-malware software to help identify a phishing scam. However, the best defense is to train all company staff to identify such scams and be doubly careful about what you download and which links you click on.
5. The Vanity Scam
The vanity scam preys on human emotion—in this case, pride. They say that pride comes before a fall, and that is exactly the nature of the vanity scam. The small business is told by email or a phone call that they have won a prestigious award. The business is asked to pay to receive the award, something an accredited awarding body would not usually ask. Of course, the award doesn’t exist, and the company ends up losing its money if it pays.
How to avoid it: We all like to be rewarded when we have done well, but we should never be asked to pay for the privilege. Research into the awarding body or organization is key. If it seems bogus, avoid it at all costs.