Overpayment Scam: Protect Your Business from Scammers

This entry is part of 33 in the series Data Security

As a small business owner, you work long and hard to make sure your business is successful. Small businesses are the most common victims of fraud at 31.8% according to the Association of Certified Fraud Examiners. That number is higher than any other business category. The truth is that small businesses are the most vulnerable because they often lack internal controls to curb the effect of scams on their bottom line. So, how can you protect your business from scammers? The first step is to identify the common red flags that accompany a scam and then educate your employees on how to spot them. Below we dive into one of the most common types – overpayment scams – and how to mitigate them.

Overpayment Scams Explained

The overpayment scam is one of the oldest tricks in the book. This occurs when a customer comes up with a reason to overpay on a bill or invoice using a check. They typically then ask you to wire back the extra money to a third party after the check is deposited. Later, the scammer’s original check bounces leaving the business liable for the entire amount. They typically have a convincing story to accompany the scam, so stay engaged and ask questions.

How to Avoid Overpayment Scams

  • Consider implementing a policy that does not allow for wiring money to any customer or vendor.
  • Never accept a check for more than your selling price.
  • Verify important details when accepting checks for goods and services:
    • Name
    • Street Address
    • Driver’s License Number
    • Telephone Number
  • Remember that you can always call the bank on a customer’s check to verify funds before a check bounces. Scammers will typically try to make you feel bad for taking the time to verify funds – don’t fall for this trap!

Read, ‘Protect Your Business from Bitcoin Email Scams.

Common Red Flags to Look For With Scammers

Attempts to scam your business can come in many different forms but there are often a few common underlying tactics to keep an eye out for. It’s important to have internal policies in place to combat these common red flags.

  • Avoid the use of untraceable payment methods. Scammers often try to gain payment through unconventional methods such as wire transfers, Apple Pay, reloadable cards or gift cards. These payment methods make it nearly impossible to reverse or track the lost money once it’s sent, making it ripe for fraud. Consider implementing a policy that does not allow this type of payment.
  • Don’t submit to intimidation or fear. Scammers often like to use fear by telling you that something terrible is going to happen to force you to submit a quick payment without verifying the truth of their claims.
  • Always verify who you’re talking to. Scammers love to pretend to be someone you trust. Be sure to verify someone is who they are saying they are, especially when money is involved. It’s common for scammers to pretend to be a government agency or even a company you’re familiar with.
  • Don’t rush into a quick decision. Scammers often create a false sense of urgency, especially when requesting payment for something. You should always verify and never submit payment without doing your due diligence.

Top Tips to Protect Your Business From Overpayment Scams

Now that we’ve identified common red flags and examples of scams targeting small businesses, it’s important to focus on how we can prevent these attempts.

Conduct Employee Training

Training and empowering your employees with information is an important first defense against scammers. Consider ordering and distributing the Federal Trade Commission’s pamphlet on small business scams. Encourage coworkers to communicate internally when they spot a scam and train employees never to share password information or remit payments without proper approvals.

Verify all Invoices

Scammers’ number one priority is usually gaining funds or money quickly. Be sure to verify the authenticity of all invoices before submitting payment. Never pay bills unless you know it is for items that the business actually ordered. Consider setting standard operating procedures for approving expenditures and strictly adhere to them. Pay special attention to how someone asks you to pay – if a wire transfer is requested, you can bet it’s a scam.

Research Who You Are Dealing With

Be sure to do thorough research before engaging with a new company or vendor. It’s always a smart idea to do an online search with the company name and the term “scam.” Be sure to consult online reviews and pay attention to what people are saying about the vendor or company. Feel free to reach out to friends in the industry as a final verification. You can find more information and resources for small businesses at score.org, funded by the US Small Business Association (SBA).

Other Notable Scams to Be Aware of

  • Fake invoice scams. A common scam targeting small businesses is the fake invoice. Scammers create realistic-looking phony invoices for products and services that your business is likely to use. These invoices can be for anything from website domain payments to cleaning supplies. It’s important to verify all invoices before remitting any payments.
  • Government agency scams. Another common scam involves fraudulently impersonating a government agency. This scam often uses the intimidation factor threatening to shut your business down or revoke a specific license if payment is not submitted. One common example to look out for is when scammers try to get businesses to buy workplace compliance posters that are available for free from the US Department of Labor.
  • Phishing and online scams. The digital world has opened up many new opportunities for scammers. We’ve all probably had our email or social media accounts hacked at one point or another. Cyber scammers try to trick employees into giving up confidential information such as bank account numbers or passwords/login info. It’s important to set up two-factor authentication on all accounts (if available) and routinely change all passwords.

Protect Your Small Business with Society Insurance

Your business is your livelihood, and it’s our job to do all we can to help you protect it. By choosing Society, you’re not only getting one of the most comprehensive plans for your business, but a partner dedicated to your company’s continued success.

Contact your local Society agent to learn more or check out our Cyber Blog Series for more tips on how to protect your business and personal information when online.

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