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Fulton Bank
Fulton Bank

How to reduce the risk of payment fraud

Payment fraud can be difficult to detect – most business owners want to assume payments for their goods or services are legitimate. Because there are a number of ways to commit payment fraud, it’s vital that business owners are aware of them. This is important for both how you receive payments and for how you’re paying your creditors.   

How payment fraud occurs

Watch out for some of the most common methods of payment fraud:

  • Returning of product – watch out for customers returning products they didn’t buy from you – or customers who pick up products in store before walking up to the counter for a cash refund.
  • Stolen credit cards – ask for some photo ID if you’re suspicious of a customer, and double check signatures.
  • Counterfeit money – if your business accepts cash, it’s worth learning how to spot counterfeit notes, especially $100 bills. Tell your cash handling staff to be on the lookout. Search online for common images of counterfeit bills so they know what to look out for.
  • Bad checks -   Avoid accepting checks if you can. Instead, ask for a credit card with identification or for funds to be banked online. Always ask for photo identification.

It’s not just retail

Although payment fraud tends to happen most commonly in retail businesses, they’re not the only ones vulnerable by any means.

Online businesses often experience payment fraud when customers have paid by credit card online. The funds appear in your account and you send them the goods – should be safe, right? Not always – a common trick is that the customer will cancel the payment after 3 days and the bank reverses the funds.

Another common internet problem is when a customer places and pays for a very small order for equipment/stock which is fine.  They then place a very large order (without paying) which you send.  But this is the fraud you don’t suspect.

How to prevent payment fraud

Help protect your business and to prevent payment fraud happening in the first place. Some of the best ways to avoid payment fraud are:

  • Monitor your accounts– use online and mobile banking to monitor your accounts daily. This helps you keep track of all transactions and activity against your accounts to stay on top of anything out of the ordinary.
  • Training employees – they’re on the front line. It’s really important to give them the tools and training to spot fraud at the source by regularly reviewing examples of fraud, and your business policy on what to do.
  • Daily finance review – keep tabs on your bank accounts to monitor what goes in and out on a daily basis and reconcile that to your records to allow you to spot inconsistencies early, before they become a problem.
  • Procedures for release/transfer of funds ─ document everything. Identify the main types of payment fraud that could impact your business. Then, clearly outline how to prevent it from happening. Make sure your employees understand and include complying with these rules as part of their employment.
  • Stay informed – talk to other business owners, spend some time researching online, and in general keep your eyes peeled for news of any recent frauds that might be operating.
  • Background checks – if you’re even slightly suspicious, there’s nothing wrong with checking up on a customer. Search for them online or in social media, ring up the company, or conduct a credit check.

Offering debit or credit card options, taking payments electronically using mobile payment methods, not accepting checks and ensuring your store has a good surveillance system are all good ways to prevent fraud.

Checks – the most common criminal

Checks are one of the most commonly used methods of payment fraud, even today. They’re costing businesses millions of dollars, because they’re so easy for fraudsters to steal. And because there’s a delay between depositing the check and having the funds cleared into your account, customers hope to receive the goods before you’ve discovered you haven’t been paid after all.

Checks are paper based, so they’re easy to copy or forge, and they’re mailed, so they can be intercepted. This is where you, as a business owner, can be liable for payment fraud yourself if you’re using checks to pay suppliers.

Your basic rule-of-thumb here is to avoid them, both for making and receiving payments. One option is to not accept checks at all, where there’s a wealth of online and electronic options available.


Your goal should be to protect your business from payment fraud using the most up-to-date payment options available and moving away from old paper-based systems. The better the technology, the better the security will be, and the harder fraudsters will find it to get around the systems.

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