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Like their larger counterparts, small businesses are no strangers to fraud. In fact, smaller organizations may be even more susceptible to scamsOpens in New Window than large corporations. A 2018 study found that almost two-thirdsOpens in New Window of small businesses were aware of the potential of being scammed. Unfortunately, smaller businesses often suffer an impactful financial loss when they become victimized.

Sadly, smaller businesses sometimes don’t have the same security measures and systems in place that larger organizations do. However, being educated ahead of time means small business owners can take the necessary precautions to protect themselves. 

Common Small Business Scams

If you own or are employed by a small business, it’s important to know about the types of small business scams. 

  • False invoicing: a scammer sends an invoice for products or services a business never ordered.
  • Phishing schemes: a scammer steals private information over email or text by using a virus activated by clicking a link.
  • Business email compromise: a scammer poses as a trusted contact and requests payment or valuable information through email.
  • Directory or advertising scams: a scammer sells an advertisement or listing to a small business and doesn’t place the ad.
  • Utility company scams: a scammer pretends to be a utility company employee calling to collect immediate payment to prevent service interruption.
  • Government agency scams: a scammer pretends to be a government agent demanding payment for taxes, legal fees, registration fees, or fines.
  • Tech support scams: a scammer impersonates a tech support company and tries to gain access to a business’s computer system. 
  • Business promotion scams: a scammer uses false information and testimonials to sell a fake coaching program with the promise of huge results.
  • Identity theft: a scammer impersonates a business and may even create a fake website with the same logos and information to trick customers.
  • Overpayment scams: a scammer makes a payment by fake check for more than they owe, then asks you to return the difference.
  • Disaster loan fraud: a scammer poses as a loan broker promising to approve you for a loan and demands upfront payment for their "fees.”

Of course, fraud isn’t limited to the aforementioned scams. That’s why you should also be aware of the general signs of small business scams and common scammer behaviors. 

Signs of Small Business Scams

While a small business scam might be hard to detect early on, there are certain red flags that signal something’s wrong. Below are common signs of small business scams: 

  • Someone asks you to pay through an untraceable method. This usually includes payment by gift card, prepaid card, or wire transfer. 
  • Someone asks you for personal, business, or financial information during an unsolicited phone call. No trustworthy person should be calling you or your employees seeking private information. 
  • Someone asks for an upfront payment on a loan. Loan terms are always spelled out clearly at the time you acquire the loan. If you do not understand the terms of any loans you’re taking out as well as what fees are involved, you should question any unexpected payments. Contact your lender directly with any questions you may have about your loan.
  • Someone asks you to sign documents with key information missing. Scammers can use this opportunity to fill in the details of a signed contract at a later point. Only sign documents that are complete. Question anyone who says, "Oh don't worry about that, I'll fill it in later."

Keep an eye out for these signs so that you are aware when there's a potential threat against your business.

What Do Scammers Do?

Scammers will…

  • Pretend to be someone else
  • Create urgency to make you act before thinking
  • Use fear and threats to motivate action
  • Use untraceable payment methods

When you notice any of these behaviors, stop and take the steps needed to figure out what may be going on. Urgency, fear, and secrecy shouldn’t be a part of legitimate business transactions, so don’t brush them off as part of the process. 

How to Avoid Small Business Scams

Now that you know some common small business scams, red flags, and scammer behaviors, you can better detect this type of fraud early on. But, it’s also critical to do everything you can to prevent scams from happening in the first place. 

Use these strategies as prevention measures to avoid small business scams from happening: 

  • Educate your employees. The more eyes looking out for red flags, the more likely you can catch a scammer before a situation gets dire. Share this information with your employees and implement company-wide policies to mitigate risk. 
  • Secure your technology. Protect your devices (phones, tablets, laptops, and desktop computers) from viruses, keep your software up-to-date, and secure all private information with passwords. Invest in top-notch security programs to ensure that your organization’s data is unable to be accessed.
  • Pay close attention to invoices, receipts, and transactions. Investigate any discrepancies as soon as you notice them. If possible, limit the number of employees who can make orders and pay bills. When you limit the likelihood of mistakes, it’s easier to spot suspicious activity. 
  • Do your research. When doing business with another company or contractor, do your research. Look up the business on the Better Business BureauOpens in New Window to make sure they’re trustworthy and legitimate. Request references from current clients and search for online reviews.  
  • Keep records of everything. Avoid making payments that aren’t traceable (e.g. gift cards, prepaid cards, or wire transfers), and always get receipts. 
  • Use email wisely. Don’t share passwords or other sensitive information via email — and don’t ask for this information over email, either. Don’t click links in suspicious emails. Make sure your employees understand and abide by this as well. 
  • Hire an accountant. If you don’t have the bandwidth or expertise to best manage your bookkeeping, it may be prudent to hire someone. Having professional eyes on your financial activity and cash flow is a great way to make sure no suspicious transactions or activity slip through the cracks. 
  • Protect your identity. Looking out for your small business starts with protecting yourself. Sign up for identity theft protection servicesOpens in New Window that can help you in case of fraud and alert you of prevalent scams. 

How to Report a Small Business Scam

Despite your best efforts, there are a large volume of small business scams out there, and there stands a chance you may encounter or become a victim of one. 

If you notice suspicious activity, you can — and should — report it.Opens in New Window 

Depending on the type of scam, there are different places to report it. You can report the most common scams to the Federal Trade Commission (FTC)Opens in New Window. For online scams involving fake emails and websites, report them to the Internet Crime Complaint Center (IC3). 

Partner With a Trusted Financial Advocate Like Lafayette Federal

At Lafayette Federal Credit Union, we know that the rise of scams puts more and more people at risk of financial fraud every day. We care about our members’ online and financial safety, and our team members are trained to help you spot potential scams or abuse that could harm your financial wellbeing.

If you have concerns about a potential scam or believe you may be a victim to one, don’t be afraid to ask questions. Come into a branch or learn moreOpens in New Window about protecting your identity online at Lafayette Federal.

Not a Lafayette Federal member yet? You can become a member by completing an online membership application, scheduling an appointment or walking into a branch, or scheduling a virtual meeting with a Business Development Officer.

Not a Lafayette Federal member yet? You can become a member by completing an online membership applicationOpens in New Window.

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