Small Businesses Need to be Aware of Payment Fraud Risk

There are many types of risks small businesses can run into in the course of their daily operations and some of them can have a potentially large impact on their bottom lines. One of these potential issues, which is becoming more prevalent these days, is known as a “charge-back,” and comes as a result of payment card fraud.

Charge-backs can be particularly crippling for small businesses for a number of reasons, according to a report from New York Newsday. For instance, suppose a company accepts a fraudulent charge for $100 that is later disputed by a person who was ripped off by the crime. The enterprise loses the revenue from that sale itself as well as the product or service they sold in it. Further, they will be subject to a penalty from the credit card company that processed the charge-back in the first place, and these can sometimes be significant.

Depending on the credit card processor in question, charge-back fees can range from about $15 to as much as $100 per offense, the report said. Moreover, if the company suffers too many such fraudulent purchases – usually amounting to roughly 1 percent of all the transactions they handle – the company could end their ability to accept transactions with cards issued by that processor. That, in turn, can mean a significant amount of lost revenues, as many consumers now prefer to pay with cards only, and opt not to carry much or any cash on them. Even fewer write checks these days.

The problem is that in some cases, the fraud claims are legitimate, in that they involve identity theft or a similar crime, but in others, a person who bought a product themselves may dispute the purchase, the report said. Neither one may be particularly easy for small businesses to spot, but there are certain ways to crack down on these incidents, so that they don’t end up wreaking havoc on that company’s bottom line.

The easiest ways to deal with the problem
Of course, the best way to reduce a small company’s exposure to charge-backs is to do more to prevent fraud up front, which may be particularly helpful for companies that do a majority of their business online rather than in a brick-and-mortar store, the report said. There are services that will allow companies to identify purchases that may have been made fraudulently, and that allows them to get in contact with the people on the other end of the transaction to ensure that the purchase was made without malevolent purposes.

In addition, taking relatively simple steps to ensure that cards are being used as they should be when in-person purchases are made – such as not before the start date or after the expiration date listed on it, or without a signature on the back and photo ID – can go a long way toward making sure that these issues don’t crop up, the report said. By setting a clear process for employees to follow to ensure that cards at least appear to be presented properly, companies can reduce a lot of the risk they might otherwise be facing.

Owners worried about the potential costs of these fraudulent purchases may want to do more to shore up their companies’ financial standing in general, and it might be wise to try to find more affordable small business insurance. Reducing costs for workers’ compensation or general liability insurance policies may free up as much as thousands of dollars per year which can then be devoted to other aspects of the company’s daily business.