In June 2014, America’s Federal Trade Commission charged Oni Nathifa Julien and a number of her companies with sending fraudulent invoices to small businesses. Julien and her colleagues would bill organizations $479.95 or more for a listing in the Yellow Pages business directory. The invoice even included the Yellow Pages’ walking fingers logo. If the businesses disputed the bill, Julien would play faked audio recordings to suggest that an employee had authorized the order.
Julien received a fine amounting to more than $3 million, which fine was suspended by the courts because of her inability to pay. But she wasn’t the only scammer using fake directory listings to demand fraudulent payments from businesses. The FTC sued a number of Canada-based fraudsters who had sent similar invoices. Some of them had followed up with collection warnings demanding $2,000 to businesses that had ignored them and a few had even masqueraded as debt collectors. The criminals were banned from the directory business and were fined more than $1.2 million.
A scam based on a false invoice should be relatively easy to spot. The accounting department should be able to track orders and purchases to make sure that they match the bills coming in. However, not all attempts at fraud are that simple to identify but most will set off red lights that should make a business wary. Below are some of the warning signs that tell you that your business has been targeted by a criminal.
The Order Comes Out Of Nowhere
Business owners might dream of big purchasers suddenly turning up on their doorstep with a big bag of money and an order list as long as their arm – but in practice, purchases rarely happen that way. Sales staff usually have to track down buyers, make their pitches, build a relationship and negotiate the sale. B2B purchases are typically expected and predictable so when a big order comes out of nowhere from a customer with no purchase history, the red light should go on.
That doesn’t mean the order is necessarily fraudulent. It just means the seller should be wary. Escrow accounts can make sure that funds really are transferred before the goods leave the warehouse, and contacting the buying firm directly to make sure that someone isn’t using their identity can help to allay any fears.
No Negotiations Over Big Orders
Buyers of big purchases won’t just be known to the seller, they also come with plenty of questions… and they often want to negotiate. They might expect a discount for bulk, a particular payment plan or some of the optional extras included at a lower rate. Business sales are much more flexible and varied than retail sales, and both sides usually expect some degree of negotiations.
When buyers just take whatever’s on offer, it’s usually because they never had any intention of paying. Ask questions to find out how much they really know about what they’re buying.
The Buyer Is International, And Most Of Your Customers Are Local
Landing the attention of a new customer on the other side of the world can be a thrill. The business isn’t just doing well in its own market, it’s also competing internationally. But legitimate foreign buyers will usually look for local suppliers before being prepared to pay for the extra cost of shipping and the difficulty of long distance servicing.
There are only two reasons a foreign buyer will look overseas for a supplier: the seller is offering a product or a quality that can’t be bought locally; or because it’s much harder for a defrauded company to chase a criminal in a country far away that has weak courts. If you land a large order from China, from Russia, from some countries in Africa or from any country with a record of phishing scams and cybercrime, act with caution, and do your research.
The Buyer Shows Unusual Urgency
Businesses will often encounter buyers who suddenly discover an urgent need for their product. Those buyers will choose something off the shelf, provide minimal guidance and skip the negotiations. They know what they want and they want it right now. In fact, as far as the buyer is concerned, the speed of the delivery is more important than any other factor in the purchase.
The fact that orders like these are so rare is a strong indicator that they could be trouble. Criminals want their purchases fast for the same reason that burglars like to get in and out of a home or shop quickly: they want to grab the goods and be gone before the victim knows they’ve been robbed.
Like most red lights, though, an urgent order can be legitimate. Companies can discover that they have a shortage. They too might have received an urgent order and need to grab some raw materials quickly in order to please their own customer. Hold up the order while you conduct your checks, and you could lose it.
The best solution is to prepare everything while running security checks but don’t arrange the delivery until you know you’re satisfied.
The Buyer Has To Try Multiple Payment Methods Before Finding One That Works
Reliable buyers usually know how they want to pay and they’re familiar with the various B2B payment methods available. They won’t blanch when you suggest sending the payment through an ACH transfer, they may be savvy with digital payments, but if they’d prefer to use the company’s commercial card, they’re ready with their card details too.
Fraudulent buyers are more likely to prefer to settle up by credit card or check so that they can use the float time to make their getaway. And that credit card doesn’t always work. If the buyer is using stolen numbers, the card might have been blocked before they were able to make their purchase, and they’d need to scramble around for another one.
When a first payment attempt doesn’t work, pay attention to the red light. Check the identity of the credit card owner and call the credit company to verify ownership.
B2B payment fraud can vary considerably in the methods used, and that fraud doesn’t have to take place only in the order process. Invoice fraud is also common and thefts an take place within companies by employees or people they know. Nor do red lights always indicate that a business has to shut down an order immediately. The challenge is to use those warning signs as a reason to operate with caution and check for possible fraud without putting off legitimate purchases. False positives cost businesses money too. Businesses vulnerable to B2B payment fraud have to be able to safeguard their security while still being able to take orders from new customers and operate their payment systems.