Starting a business is an exciting and often
life-changing moment for many people. It’s one of the few ways that the average
person can break out of a conventional 9-to-5 job.
Yes, it does come with a certain modicum of
risk, but nothing in this world is achieved without a price. Thus, millions of
Americans across the country choose to take the plunge and become
entrepreneurs. Some of them fail, but many still find success.
However, just because your business takes off
doesn’t mean that you are in the clear. After all, there are several ways that
things can go south, and one of them commonly occurs through fraud. Globally,
fraud costs businesses over $3.7 trillion every year in losses.
In this article, we will be exploring four
common types that new business owners may not be ready for. Let’s get to it.
One of the most common types of fraud that you
can run into is first-party fraud. Essentially, the fraudster
manipulates either his personal information or identity during a transaction.
First-party frauds often happen in the
financial sector. For instance, someone may want to raise the credit limit on
their credit card and falsify information to be eligible.
Similarly, there are several cases of people
manipulating information to qualify for loans that they would not be eligible
for. Protecting against them requires that you have a robust identity
verification process in place. This includes having the systems needed to
validate customer information and detect abnormal behavior.
Regular audits don’t hurt either.
Though this fraud is more common in the financial sector, it can happen in any
industry where customer information is critical.
Sometimes, the danger comes not from an
external party but from within your ranks. That’s right, your employees can take advantage of the trust that you place in them. This
trust often comes with access to sensitive information that they can use for
You hear about cases of embezzlement and
inventory theft almost every day on the news. The truth is that employee fraud
can be extremely harmful to your business because it comes at you like a
curveball. Besides having measures in place where no one employee can mess with
your business and hiring prudently, there’s little that you can do.
That said, some helpful tips include creating
a whistleblower program. Why? It’s because, oftentimes, employees tend to chat
with one another. An employee may realize a serious crime is
about to be committed and want to warn you. At the same time, they may not want
to identify themselves out of fear of unintended consequences.
Whistleblower programs ensure that such
employees can report suspicious activity by their co-workers before it’s too
This is arguably one of the most frustrating
types of fraud that you can be a victim of.
While the individual effect on businesses may
not be as massive, as a whole, it’s a different picture. According to Ethoca,
they cost merchants over $50 billion every year.
In this type of fraud, the customer issues a
chargeback against their payment. It’s not always intentional, and there are
legitimate reasons to do a chargeback, but it’s very obvious when someone is
trying to commit friendly fraud.
You might have packed a product perfectly and
sent it via a trusted logistics partner. However, the customer proceeded to
claim that the product was damaged, and the proof they sent showed highly
suspicious damage. Sometimes they may claim they never even got the package.
It then becomes a he-said-she-said situation,
and credit card companies will often issue the chargeback, making it a loss for
you. Even if you could treat it as a business loss, the consequences of chargebacks
can be greater than you expect.
It’s not uncommon to see online marketplaces
ban a merchant if they receive more than a certain number of chargebacks. This
also makes it easy for people to carry out targeted harassment against you.
Unfortunately, protecting against friendly fraud is hard.
Requesting customers to record their unboxing
and keeping detailed records of all transactions can be helpful. Even if you
still get the chargeback, you can at least avoid getting your merchant account
banned by having enough evidence to prove your innocence.
You would think that people would be more
careful about clicking links in emails in 2023, but no. People are still
falling for phishing scams, and this holds true for businesses as well.
Data leaks and hackers have made it very easy
for email addresses to get leaked online. Once they do, it’s just a matter of
time until a bad actor decides to try their luck and target your business.
If and when that happens, you need to be prepared.
You should do some research because modern phishing attacks can be surprisingly
convincing. You might realize that you and your team may be grossly unprepared.
In conclusion, running a successful business
is a dream for many Americans. However, it doesn’t come without its challenges.
Unfortunately, our world isn't a utopia where bad things don’t happen. Thus,
fraud protection is simply something that you need to invest in.
Remember, it’s better to put in the effort
rather than find out the hard way.