5 Types of Payment Fraud You Should Know

Payment fraud is a complex threat that can significantly impact your business's health and viability. A single instance of fraud could result in the loss of thousands of dollars—not to mention a degree of trust in your business by employees and customers.

Stay vigilant by educating yourself on what threats to look out for. Here are five common forms of payment fraud that you should know about, plus tips to help you protect your business against them.

Credit card fraud

If you issue business credit cards, you must ensure employees take the necessary precautions to appropriately protect and use them. The key is to set strict policies about what does and doesn't qualify as an approved charge.

You'll also want to review business credit card statements as soon as they are available. If a charge looks suspicious, talk with the employee to see if there was a mistake on their end. If you think the card was compromised, contact your bank immediately to dispute the charges and close the account. The longer the card remains valid, the greater your risk of accruing additional fraudulent charges.

Wire fraud

Illegal wire transfers are a common type of fraud in which criminals try to scam people into authorizing a wire transfer from a business bank account. They may pose as a customer or vendor to gather information that can help them gain access. Once they identify who can authorize a transfer, they might send an email that looks like a legitimate request for funds. Wired funds are settled immediately, which means it can be difficult to recover them after you detect fraud.

Protect your business by verifying any payment requests from vendors or customers that look unusual. Call the number you have on file instead of using contact information provided in the request. Also, limit the number of employees who have authority to approve or send wire transfers from your account.

ACH fraud

Your business may use automated clearing house, or ACH, transfers. While they're a convenient way to pay bills and direct deposit an employee's salary, they can also create opportunities for fraud. Hackers may try to obtain your banking information, often through an email phishing scam, and then use it to initiate payments via phone or online.

To combat ACH fraud, have a special account used for issuing ACH transactions. Get to know your vendors and watch for any activity that seems unusual. Also, set limits on ACH transfer amounts, and review your accounts daily to identify potential fraud immediately.

Forgery

Many of today's transactions are digital, but forgery can still happen. With this type of fraud, someone obtains a company check, makes it out to themselves or an accomplice, and forges the authorized signature. Businesses often find forgery when a check that wasn't recorded in the accounting system is cashed.

To help prevent forgery, keep checks in a secure place only accessible by authorized individuals. Also, match payees to bank statements to catch suspicious activity.

Invoice fraud

Invoice fraud is another common scheme that can happen to small business owners. Criminals send false invoices that, at first look, appear to be legitimate charges from vendors for products or services. The goal is to get the invoice paid without question.

Protect yourself against invoice fraud by cross-referencing invoices with purchase orders and contracts. You can also request that the vendor provide the name of the authorizing agent from your business. Be wary of anyone who asks for quick payment outside of your standard invoice terms.

The bottom line

Criminals often target successful small businesses because their owners are juggling many responsibilities and could overlook the charge. You can help protect your business from fraud by closely following all financial transactions. Implementing strong fraud detection solutions can also go a long way toward helping you stay vigilant against these threats.