Fraud can significantly impact businesses of all sizes. According to a study by the Association of Certified Fraud Examiners (ACFE), the average business loses up to 5% of their annual revenue due to fraud. Of those businesses, organizations with fewer than 100 employees are targeted most frequently.

Any loss can significantly impact your cash flow, so it's important to implement fraud prevention strategies to help reduce the likelihood of a loss. 

Common fraud types

There are many types of payment fraud, including credit card fraud, identity theft, chargeback fraud, which is a forced reversal of a transaction after the customer receives the purchased item or service, and impostor fraud.

Impostor fraud involves a scammer posing as a person or organization that an employee may know and trust, such as a vendor or loan representative. In many cases, the impostor will call, email, fax, or send a letter to request payment for a fraudulent invoice or provide “updated”vendor payment instructions. Because the business initiated the payment, funds may be harder to recover.

Follow these best practices to help keep impostor fraud at bay:

  • Educate staff on impostor fraud
  • Require dual verification of the validity of payment requests
  • Monitor account activity for unauthorized transactions

Fraud prevention strategies

Mason Wilder, a research specialist for the ACFE, shares more on how small businesses can keep various forms of fraud at bay.
 
  • Train employees to spot in-person fraud: Business owners can invest a small amount of time to educate employees on how to spot suspicious customer behavior, Wilder says. Teach employees how to spot counterfeit bills, and if you accept checks, make sure employees always ask for ID. “A suspicious customer will act rushed. They may try to distract the cashier with random conversation or have a strange ID,” Wilder says. “They may also try to make a very large purchase right before the close of business.”
  • Monitor point-of-sale or payment systems: Limit access to point-of-sale or payment systems and regularly inspect equipment for signs of tampering.
  • Invest in fraud detection software: Wilder recommends using a fraud monitoring program, which runs every transaction through an extensive data analysis before it is processed. These programs can look for the type of device the purchaser is using, such as a prepaid cell phone, and if an account number has been flagged before.
  • Don’t ship merchandise until a transaction has cleared: Small businesses with online orders should always wait to ship a product until a payment goes through, Wilder says.
  • Look for trends in your books: Fraud is frequently an inside job. Wilder suggests paying close attention to your financial history. Ask yourself: Is suspicious activity happening when one particular employee is working? Is it during a certain time of day? What else can you conclude from your own data? If you spot a significant correlation, consider how you can address and resolve the situation.

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