Small businesses need to be continually watching out for scams and fraudsters. The latest scam is similar to a famous fraud from years ago, but with added technology. John Canfield is the Vice President of Risk Management at WePay. He spoke with Small Business Trends about what small businesses need to look out for.
Updated 419 Fraud
The latest advance fee fraud is an updated version of the 419 fraud common years ago. The name comes from the crime’s spot in the Nigerian Criminal Code. Back then, Fraudsters tried to convince would-be victims to make payments to be released from a bank in Nigeria.
“But gone are the days of those typo-ridden letters we all know — fraudsters today have evolved and perpetrate much more sophisticated and plausible stories,” Canfield says.
In this latest version, email automation software is used to lure small businesses. The intended victim receives an email that initially appears to be personalized even though the fraudster can target hundreds of potential victims at once.
Examples of Advance Fee Fraud
Here’s an example. You own a small website design company. The fraudsters approaches you saying they noticed your work and want you to build a website for them. They mention they have a specific photographer in mind. They ask that you pay the photographer up front and then add the cost to your final bill to simplify the invoice process. After you make the payment, the fraudster disappears.
Referred by a Customer
They might also tell the intended victims they were referred by a customer they got off a website or online search. Small business owners can even find the subcontractors mentioned by the fraudsters online.
The fraudsters tell the business owners they are looking to work with them. After making a payment with a stolen credit card, they ask that a portion of this initial payment be sent to a subcontractor via wire transfer.
Non-refundable Wire Transfer
The subcontractor and the fraudster are often one and the same. The non refundable wire transfer vanishes. Even the credit card payment gets charged back as fraudulent. The effects can be devastating.
Impact on a Small Business
“These scams, when successful for the fraudster, can have great impact on a small business. They can wipe out profits,” Canfield says. “They can also undermine your confidence or sap your energy when, as a small business owner, you need to bring it every day.”
Advice for Small Businesses
Canfield has the following advice for small businesses.
“First, if a new customer emerges out of nowhere and wants to pay you a large sum of money without ever having spoken with you before — it probably is too good to be true.”
He says you should meet with a prospective client in person or on the phone before working with them. Canfield also says you should be wary of people from great distances that want to work with you when they can just as easily pick someone closer to home. Business management software and payment tools should also be considered. Finally, he suggests small business should be cautious of requests for money or personal information.
“You should also train your employees to be equally wary of such requests,” he says.