5 Common Payment Scams Affecting Businesses

Payment is one of the most important parts of running a small business. Unfortunately, it’s also a common target for criminals. Here are some of the most common payment scams affecting small businesses and how you can avoid them: 

1. Paying with an unauthorized or stolen card. 

A customer will pay with a stolen or otherwise unauthorized credit card or debit card. This is especially prevalent with tap payment. Unfortunately, there’s not too much your business can do to prevent this. Keep an eye out for suspicious behaviour. You may also want to require a PIN for purchases, at least those over a certain dollar amount.  

2. Point-of-sale system tampering. 

Scammers can install skimmers, recording devices or even malware onto your point-of-sale system devices. These can steal the customer’s payment information and damage your company’s reputation.  

To protect your point-of-sale system:  

• Don’t leave point-of-sale devices unattended.  
• Physically inspect terminals regularly. Even minor things like a missing seal, new hole and changed decal can indicate tampering.  
• Only used approved devices and follow the manufacturer’s instructions on maintenance and retirement. Keep all software up to date! 

• Track point-of-sale devices (whether they’re in use, stored or being shipped).  
• Secure terminals to prevent removal and tampering. You can use stands, tethers and alarms. 
• Use an authentication system to detect internal serial number or connectivity changes with your terminals.  
• Maintain a detailed record of your devices (make, model, serial number and exact location it is deployed) and regularly check that what is on the floor matches your inventory. 
• Deploy cameras to monitor your point-of-sale system and regularly review footage. 

• Train staff to recognize equipment tampering and to keep your system and devices safe.  

 3. Chargeback fraud. 

Chargeback fraud is when a customer contacts their credit card or bank to dispute a legitimate purchase and request a chargeback (refund). Chargebacks were created to protect consumers if they paid for an item or service they didn’t receive. Unfortunately, some people abuse this. This scam costs your business money due to the refund as well as processing fees. It can also damage your reputation with the credit card company.  

Preventing chargeback fraud is best, as fighting it can be difficult. You can: 

• Use strong credit card verification such as requiring the CVV code and ensuring the address provided matches the card.  
• Send order confirmation emails. 
• Remind customers of re-occurring payments.  
• Use shipment tracking and require a signature upon delivery. 
• Use clear product descriptions and transaction descriptions (so customers recognize what shows up on their bill). 

• Have a clearly defined return policy.  
• Document all interactions and conversations.  
• Be suspicious of customers buying large quantities, shipping to different addresses, or having a different shipping and billing address. 
• Ensure employees are well-trained on documentation practices. 

Disputing a chargeback takes a lot of time and effort. Documentation is key to fighting a chargeback. While many businesses decide it is not worth it to dispute, this does mean the scam goes unchecked.  

4. Fake invoices and orders.  

Another common scam is to send fake invoices for orders or services that were never requested. These can appear to come from utility companies, cleaning services, office suppliers, advertising agencies, and any other type of services your business could conceivably interact with. Sometimes, these scams use fear and urgency to get money, such as saying your power will be shut off or they’ll send you to collections. Unfortunately, these fake invoices sometimes get paid if someone isn’t paying close attention. 

To catch fake invoices and orders, your should: 

• Call new suppliers to confirm account numbers and invoice.  
• Use e-invoicing (invoices sent directly between accounting software of two companies). 

• Check the email address the invoice is sent from.  
• Always inspect all invoices (and how they compare with previous invoices). 
• Call the supplier directly to confirm or if something is suspicious. 
• Check before paying any new invoices. 
• Have a procedure for invoicing and approvals for new suppliers and expenditures. 

• Research a company before doing business with them or sending any payment. 
• Train employees to recognize fake invoices and follow procedures for approving expenditures. 

It’s important to carefully review invoices and keep track of what has been ordered, as well as develop clear procedures for approving expenditure.  

5. Embezzlement. 

Employees who accept payment or handle accounts may embezzle money from their employer. It’s important for you to keep an eye on your bills, statements and inventory. An accountant can help.  

Here are some tips to prevent embezzlement in your small business: 

• Check references and conduct background checks for employees who will be handling transactions. 
• Separate accounting responsibilities. 
• Enable cross-checking financials (at least two employees checking that everything adds up correctly).  
• If your business handles a lot of cash, do daily cash deposits. 

• Have multi-level approval processes for things like expense reimbursements and overtime. 
• Double-check bank statements (check for missing or out-of-sequence cheques and unknown recipients). 
• Carry out audits.  

While payment scams are not entirely preventable, these measures should help reduce their prevalence and protect your business.