Businesses
are increasingly becoming victims of “friendly fraud” - fraud carried out by
customers to get items free of charge. Better Business Bureau warns small
business owners to be on the lookout for friendly fraud and offers advice on
how to protect against this growing online threat.
According
to the Wall Street Journal, many companies – for example, the travel site
Expedia - are currently seeing up to a 50 percent spike in friendly fraud since
October 2008. The most common types of friendly fraud involve cases in which a
customer falsely claims they:
- Never received
an item ordered online;
- Received the
wrong item ordered online; or
- Had their
credit card stolen and were charged for items they didn’t order
The
customer then demands a refund from the business or issues a chargeback on
their credit card.
“There
is nothing sweet and nice about friendly fraud. The negative impact on
businesses is doubly painful, because not only do businesses lose the merchandise,
but they also are out what they should have made on the sale,” said Frank
Whitney, MidCal BBB CEO.
When
“friendly” fraudsters are unable to coax reimbursements from a business
directly, many then issue chargebacks to their credit card companies. Creditors
will investigate the situation, asking for the business owner’s side of the
story before deciding whether or not the business is at fault.
Defending
a business against friendly fraud is no easy task, but there are steps to take.
BBB offers the following advice to small business owners:
- Verify the buyer’s billing address
before sending merchandise. Some retailers require that the
billing and shipping address match before fulfilling an order. However,
some businesses have found that simply paying for an Address Verification
Service, which confirms that the billing address matches the address
associated with the credit card, is sufficient.
- Use a shipper that tracks delivery. Some
shipping firms provide tracking information and signature confirmation.
Such information can help shed light on whether or not the customer really
didn’t receive the goods.
- Deactivate or deny access to products.
For
retailers that do not ship
tangible items, but rather items such as downloads or access to sites, a
plan for denying access is both prudent and practical.
- Clearly state your return policy on
your Web site.
This includes any product guarantees, time restrictions, condition requirements
or fees—such as for restocking.
- Be prepared to make your case to the credit
card company.
Staying organized and presenting a solid case—including records of
delivery or reimbursement and your return policy—in the face of a
chargeback will assist the credit card company, and increase your chances
for a favorable resolution.
- Analyze sales records. This can help
you identify consumers who charge back items on a regular basis, enabling
you to decide whether or not to stop doing business with them.
For
more advice on defending your small business from fraud, visit www.bbb.org.