How to protect your small business from fraud

Last year, Jeff Brown, head of business solutions at Equifax, Canada, surged in amid the digitalization of the construction industry. A criminal who claims to be a legal contractor will order items that cannot be easily identified, such as wood or pipe parts, for delivery to the so-called work site – only without a work site, the order is a scam. By the time the real contractor knew what was going on, the materials were sold on the black market and the fraudsters had cleared it.

“Business-to-business relationships tend to run on the net payment terms. This means you can deliver products to non-standard locations without having to pay the supplier for 30 days,” Brown said. “The buffer can be used as a evasion window for scammers.”

I cheated several times and the scam spread. “When scammers see what they can exploit, they double, and that becomes a trend that can eventually become a systemic problem,” Brown said.

Why small companies are targets of fraudulent attractiveness

Small businesses like contractors have special attributes that can make them attractive to fraudsters, including:

• They are larger than most consumers. “The average working capital loan for small businesses is about $40,000,” Brown said.
• Small business owners are often unaware of their credit status and may not track the company’s credit report.
• Commercial credit information is easier to obtain than personal credit information because it is less subject to privacy laws and businesses often want to prove more transparency to encourage others to work with them. “Businesses have to spend money to make money. There must be an open network to make businesses work,” Brown said. By looking at the company’s credit reports, fraudsters can find the typical bank balance of the company and who the largest supplier is.
• Businesses usually attack more criminals than consumer accounts. They can not only experience or imitate the owner, but also through the employees. “The business has greater potential liabilities,” Brown said.

Red flags for Canadian businesses should be paid attention to

It is hard to predict what form the next wave of small business scams will take. Fraudulent behavior continues to evolve and fraudsters often use tools of change. Artificial intelligence (AI) makes it easier to access to the rapid collection and analysis of company information, while deceiving (creating fake) companies’ images and videos may make it possible to discover what is real and what is fake. Still, there are red flags for company owners and employees to be wary of:

• You don’t usually do business organizations or use emails using unfamiliar or misspelled domain names.
• Communication requires quick approval.
• Callers said they spoke with a designated boss or colleague who approved the transaction that needs to be completed. “The fraudsters can easily get the name and title of a company manager online,” Brown noted.
• Any quote that doesn’t sound true, and those that have suspicious attachments, should be tried with caution.

Larger businesses include anti-fraud protocols in onboarding and ongoing training, which small businesses cannot always offer. However, this helps if employees are trusted and have the right to surround potential threats with their common sense.

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Pay close attention to your credit report

One line of defense is to check your company’s credit information frequently. It’s not as simple as a consumer credit report; it doesn’t boil down to a score. Instead, it includes a business failure risk score that tells suppliers and financial institutions whether companies are viable partners. It also has a illegal score that is related to the company’s timely payment history or does not pay the bill completely at all.

The business credit report will also list the company’s financial obligations. “If you see a transaction that doesn’t recognize in a company’s credit report, you can investigate and may object to it. Instead, if there are no long-term business relationships in the report, it may be in line with your interest to add them,” Brown said. “If you have a 10-year relationship with a business, having a good payment history will help you get the best price and the best product.”

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What if your business is fraudulent?

From the fraudster’s point of view, the beauty of building scams is that it is not easy to see who is responsible: the company, supplier or financial institution that uses its name. When the parties resolved this, the criminal escaped.

This is why if you think your business may be cheated, including:

• Check the company’s credit report to see if unauthorized transactions have been made
• Once you find anything strange, contact other parties to the transaction immediately
• Report it to your local police and Canadian Anti-Fraud Center.

Read more about fraud and scams:

About Michael McCullough

Michael is a financial writer and editor at Duncan, British Columbia. He was formerly a former director editor of Canadian Business and editorial director of Canadian broad media. He also writes for the earth and mail and bcbusiness.