Small Business Scams Part 1: Marketing & Financing Scams

Scams that attempt to defraud consumers and businesses abound. Being aware of the scams that are currently afoot is important for any business. The United States government through its Federal Citizen Information Center provides a centralized source of information about each scam and fraud being perpetrated. The number of scams seems endless with more emerging every day. The schemes cover topics as diverse as cars, computers, education, employment, family, federal programs, food, health, housing, money, small business, travel, and more.

Your business could also, unwittingly, be promulgating a scam without realizing it because you have been conned into participating without knowing that the scheme is illegal. Let's look at some of the most likely scams to happen to small businesses along with ways to avoid them.

Marketing Scams

Horror stories abound about individuals who have been taken in by fraudulent mass marketing schemes - from phony sweepstakes to lottery scams. However, you may not know that the very same fraudsters who target individual consumers also target businesses.

Dishonest marketers know that small business owners may be just as susceptible to fake ploys as anyone else. While fraud aimed at a small business usually results in losses of a few hundreds dollars the first time a company is hit, you may continue to fall victim to these scams if your company is not monitoring its cash flow.

Here are a few examples of what has happened to some businesses:

  • Posing as your usual office supplies provider, an impostor contacts your business, offering products at reduced or current prices in anticipation of impending rate increases. After paying the invoice, your company never receives the supplies it purchased.
  • Your company is asked to buy ad space in a business directory. The directory never sees the light of day, or only scammed companies like yours receive a copy.
  • Invoices are sent for unordered or undelivered products, hoping that the phony invoices will be paid without a second look.
  • You receive an information packet offering a service for your business. The packet includes a card that must be returned in order to "opt out" of the service, but you aren't interested, so you don't read the materials thoroughly and don't return the card. Your company is then billed for the services it never ordered.

While the FBI and other law enforcement agencies are continuously investigating frauds and trying to keep the public aware of them, these are some steps they recommend to protect your business:

  • Educate yourself and your employees about common fraud schemes.
  • Always ask for offers in writing, and require a written contract or purchase order for any transaction.
  • Have a system to review all invoices and compare them to expense records to make sure they are legitimate.
  • Use a credit account for purchasing supplies and services (if the vendor fails to deliver, you can dispute the charges).
  • Don't give out full names of employees. If a scammer knows an employee's name, they can later claim this individual authorized the purchase of a product or service.
  • Be wary of accepting checks. In some cases criminals have conducted a series of smaller, legitimate transactions to enhance their credibility and then used a forged check to pay for a large order.

Financing Scams

Small businesses in search of funding are more and more frequently turning to the Internet for loans and grants. The Internet has become a perfect venue for fraud because scammers can easily portray a professional image that gives small business owners a false sense of security.

In one scam, a variation of the advance-fee scheme that often targets individual consumers, the scammer offers low interest loans in exchange for an advance fee. You pay the fee, but your business never receives the loan. Business owners may be charged thousands of dollars in up-front fees, and are required to pay by wire transfer or cashiers check only. Make a policy of never paying large sums of money up-front to receive loans or wire payment for services because you will have no way to get your money back if the creditor is not legitimate.

In another scam, businesses are contacted by phone or email and told they were pre-approved for a substantial credit line with a one-time membership fee. When you sign up, they ask for access to your bank account information to make the transfer of money easier. The credit line then turns out not to be a small business loan, but is instead a set of coupons, discounts, and offers made by participating vendors to purchase goods and services using credit terms.

Among the most common financing schemes are the online offers to receive government grant money. Advertising with professional looking websites, scammers promise to help small business owners obtain government grants to start or expand their businesses. Small business owners are asked to pay several hundred dollars via wire or money order to learn how to get this money. They never hear from the scammer again or receive information that is easily accessible on government websites.

Read part 2 of this series to learn about identity theft and tax scams.