Getting Paid Without Getting Ripped Off
by Barbara Weltman on June 25th, 2007
Unless you have an all-cash business, you may not receive the payments you expect. Bounced checks, credit card chargebacks, and even scams can keep you from getting paid. Here are ideas to ensure payment.
Other than the corner hot dog truck, most companies today transact business with checks, credit/debit cards, PayPal, gift cards ("smart" cards), or electronic transfers. According to February 2007 statistics from FreshBooks , 16% accepted Visa, 7.8% MasterCard, 4.3% Amex, 6.5% PayPal and 65.5% other payments (checks; account credit). These seemingly "secure" payment methods can be anything but secure. Merchants bear the financial risk for fraudulent credit card use. Here is some guidance on potential payment rip-offs and how to protect yourself and your business.
The scams
Recognize potential rip-offs so you can avoid them. Examples:
–Credit card charging scams–For cards swiped at point of sale (e.g., in stores), look for customers trying to distract the salesperson during the card approval process - this could indicate that the card is stolen or fraudulent. Immediate returns (the purchaser leaves the store and immediately comes back for a refund) can be a way to obtain cash. Splitting charges among two or more cards can indicate that the cards are not good. It is more difficult for merchants to win their claim in a chargeback dispute when multiple cards are involved.
–Chargeback scam–charging a payment so you ship the goods. The customer then requests a that the credit card company reverse the transaction, claiming that he/she never received the shipment, or it was damaged, or it was not what was ordered, etc.
–Overpayment scam–sending a check for more than the amount owed to make the merchant send a refund check for the difference, only to learn that the original check was no good.
The protection
Obviously, the key to protection is awareness of the potential for fraud. Understand that receiving an authorization code from a credit card company when processing a transaction does not guarantee that the cardholder is legitimate or that you will ultimately retain payment. Merchants bear the risk of loss for fraudulent credit card use. Here is a checklist of some best practices to ensure payment:
- Adopt common sense practice for card processing
(careful checking of signatures; a second form of identification).
- Be wary of requests for shipping to overseas destinations for goods paid by credit card or PayPal–there may be chargebacks after goods are shipped so that you lose both the merchandise and payment for it. Certain countries in Africa and Europe are rift with fraud; you may want to decline sales entirely or only ship after receiving a bona fide International money order.
- For transactions in which the card is not present
(e.g., online sales), take extra precautions. Use AVS (address verification service) to confirm the customer’s address and CVVS/CVC (card verification value service or card verification code) to confirm the customer’s three-digit code imprinted on the back (an identity thief who obtains a card number from a credit card statement won’t know this code). Consider asking that the buyer fax a photocopy of his/her driver’s license to you as confirmation that the credit card address matches that of the customer.
- Proceed cautiously when a customer presents more than one card. This can occur when the first is declined to avoid the credit card company’s taking notice of large purchases. Confirm large orders with a follow-up phone call.
- Retain all paperwork for at least six months from the transaction date–the time in which a customer can dispute the payment.
SIDEBAR
Cut merchant authorization processing fees
Credit card companies’ fees that merchants pay when they accept credit cards can eat away at profits. Know your Merchant Bill of Rights (www.merchantbillofrights.com ), which was established in 2006 to promote fairness and transparency in credit and debit card processing by small and mid-size businesses–use a processing company that adheres to these rights.
Big Ideas for Small Business(R) is a free monthly online newsletter from Barbara Weltman, author of The Complete Idiot’s Guide to Starting a Home-Based Business, Third Edition, and The Complete Idiot’s Guide to Starting an eBay Business. www.barbaraweltman.com