Tips to Protect Your Small Business Against Fraudulent Chargebacks

08 Jun, 2017 / Comments: Comments Off on Tips to Protect Your Small Business Against Fraudulent Chargebacks / By

You always hear about advice for consumers to protect themselves against credit card fraud. Sources like banks and consumer groups provide pages of information and tips. Consumers aren’t the only victims of credit card fraud. Businesses are just as vulnerable. No business wants to deal with fraud, but it can be especially harmful to small business owners. You already have a tight enough budget without having to deal with chargebacks. Chargebacks are disputed charges that are meant to protect consumers against unauthorized transactions. Charges are reversed and the consumer gets their money back. You lose the money from the sale as well as the goods or services you sold. There are a few ways in which you can help to protect yourself in the event of fraudulent chargebacks.


Get All Information Related to the Credit Card

Make sure that you get all of the information you can from the credit card. This includes both in-person purchases as well as those made over the phone or online. Check the expiration date and CVV code on the back of the card for in-person purchases. Also ask to see identification to verify the names and signatures match. Taking payment over the phone or online may require a bit more work. Make sure to collect the 16-digit card number along with the expiration date and CVV code. Get the customer’s name exactly as it appears on the card. You should also collect the mailing address and phone number of the cardholder. Any customers who cannot or will not provide you with any of this information are likely to be fraudulent.


Investigate Orders with Different “Ship To” and “Bill To”

There are many legitimate cases of customers ordering products to be shipped to a different address than the one associated with their credit card. Address discrepancies are a huge red flag though. There are steps you can take to cross check information. You can look up the address online or check white page results. You can also call or email the buyer to confirm their name, shipping address and the items that have been ordered. Fraudulent card users are likely to give up if they don’t know the information you are requesting. Make sure to follow up with friendly thank you email to customers who confirm their details.


Check in to Large Next Day Orders

Orders that are larger than normal and have been requested to ship next day should raise a major red flag. Fraudulent card users are in a hurry to get their orders before the fraud is found out and the order cancelled. They typically don’t care what the cost is because they aren’t paying for it. Check into the validity of these orders to verify that the orders are correct.


Be Wary of Orders to Atypical Locations

You have a good feel for where your products go if you’ve been in business for a while. Orders that are to be shipped outside of your normal customer range should be investigated. This is especially true for international orders. Not all overseas orders are fraudulent, but there are some countries that are well known for committing it. Fraud is likely if you are receiving several large orders in a short period of time from the same IP address to be shipped to the same location. Having knowledge of your clients can go a long way in preventing fraud.


Limit Damages by Acting Fast

There’s not much you can do when fraud is discovered after the order has shipped. You can take steps to minimize the damages though. Call the police in the city where your merchandise was shipped to report the crime. Call the issuing bank of the credit card and ask them to contact the real owner of the card. Ask the cardholder to report the crime to the police as well. These actions may be able to help you recover the products that you shipped.

The bottom line is to trust your gut. There are warning signs of fraud. If a caller doesn’t sound confident while giving you the credit card information, then take steps to protect yourself, and potentially, the real owner of that account information.


William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

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