How to Identify and Avoid Business Scams

If you’re looking for information on how to identify business scams, the unfortunate truth is that, in all likelihood, you’re already a victim. More than two million small businesses are scammed each year, per Better Business Bureau (BBB) data. The average financial loss is a little over $4,000, with over $7 billion across all businesses annually. This doesn’t include your lost time, damaged reputation, and diminished customer trust. While you can’t undo what’s already been done, this page will walk you through some of the hallmarks of a business scam to help you identify if you are a victim and what to do if you are. We’ll also cover how to avoid business scams if you dodged a bullet this time or are just looking for general information on how criminals are scamming businesses today. It’s worth noting that if you feel you might be a victim of a business scam, you should jump to the “What to Do if Your Business has Been Scammed” section near the end of this article.

How to Identify Business Scams

First, let’s cover how to identify scams so that it’s easier to tell if someone’s targeting you and what to look for.

Common Tactics Used by Scammers

When people are scamming companies, they tend to follow specific behavior patterns. While some scammers may deviate from the norm, being aware of these tactics can help you spot red flags as they arise.

They Pretend to be Someone You Trust

More than half of all scammers pretend to be someone the victim trusts, per BBB research. This probably isn’t someone you work with closely, but is more likely someone at a company you engage with in a role of authority. For instance, a scammer might pose as someone in the billing office of your vendor or a bank representative. They might even pretend to be someone in your accounting office. By behaving like an authority or someone you should comply with, they disarm you and get you to do what they ask without question.

They Create a Sense of Urgency

Close to half of all scammers manufacture a sense of urgency, according to the BBB. For instance, the person might tell you that they’ve made a mistake and will lose their job if an issue isn’t resolved right now, that they can only provide a special discount while you’re on the phone with them right now, or that they’ll launch a complaint with your supervisor if you don’t address the issue promptly. When it comes to cybercrimes, some threaten to sell your data if you don’t meet a deadline or similar. This is done to make you panic so that you don’t think through your options and find alternate solutions.

They May Fly Under the Radar

Some business scammers try to avoid tipping you off, so they’ll circumvent traditional protocols. You’ll see this more in cybercrimes. For instance, many hackers send emails that look like they’re from trusted entities, hoping that you’ll click links and they’ll be able to install code that tracks you and captures your data. This type of situation occurs in about one-third of cases, according to the BBB.

They May Use Intimidation and Fear

Nearly 20 percent of cases involve intimidation or fear, according to the BBB. For instance, you may see a pop-up on your computer that tells you your system is infected with a virus and to call a specific number to remove it. In reality, the scammer is waiting on the other end of the line and is ready to collect your data or convince you to install malicious code. Another example might be a false debt collector calling, insisting that a lawsuit will be filed if you don’t immediately pay off your illegitimate debt.

They May Entice You with a Special Offer

Around one in five scammers will use amazing deals to convince you to hand over cash, the BBB reports. For instance, you might be offered 50 or 75 percent off if you place your order immediately.

They’ll Probably Request Payment via Untraceable Payment Methods

Research from the Federal Trade Commission (FTC) suggests scammers will generally request payment via an untraceable method. Bitcoin, for instance, tends to be popular among cybercriminals. However, when we look at BBB data, the payment methods aren’t so clear-cut.

• 33 percent credit card
• 30 percent check
• 14 percent bank account debit
• 7 percent wire transfer
• 5 percent cash
• 5 percent prepaid card, like gift cards for major retailers
• 3 percent online payment system
• 3 percent other

How Scammers Approach Businesses

While you might be mentally prepared for an online scam, BBB research suggests scammers prefer the phone. However, no communication method is immune.

• 57 percent by phone
• 50 percent by email
• 24 percent in person
• 15 percent postal mail
• 15 percent website
• 11 percent text message
• 9 percent other
• 8 percent fax

Most Common Company Scams List

Now that we’ve covered tactics scammers use, let’s look at some of the top business scams as reported by the BBB over a three-year period.

Fake Invoices and Payment Requests

One of the biggest scams companies fall for is fake invoices. Roughly one in five businesses experience this, and ten percent pay false bills, amounting to a median loss of $500.

Fake Checks

Altogether, 15 percent of businesses are provided fake checks, and ten percent accept them, putting this scam neck-and-neck with fake invoices. However, the fraudsters typically get away with $675.

Directory Listing and Advertising

Nearly a third of businesses are offered fake directory listings and advertising services. Nearly one in ten sign up, losing around $500 each.

Bank and Credit Card Company Imposters

Around 18 percent of businesses are approached by someone claiming to represent their bank or credit card company, and eight percent believe it. This is the most expensive small business fraud, with a typical business losing $1,400.

Tech Support

Someone claiming to be tech support approaches 30 percent of businesses and seven percent fall for the scam. This can include people pretending to be internal tech support as well as scams similar to the pop-up described earlier. The median loss is $400.

Fake Charities

Charity scams approach 13 percent of businesses, and eight percent fall victim, resulting in a median loss of $300.

Social Engineering and Phishing

If someone pretending to be your business or a business you work with or are likely to work with contacts you, it’s considered social engineering. These attacks reach 16 percent of businesses. Thankfully, businesses often catch them, and only five percent fall victim. The median loss is $500.

Worthless Problem-Solving Services

Around 13 percent of businesses are offered problem-solving services that never pan out. Around six percent of businesses fall victim to the scam. While marketing is a common fake service offered, others charge fees to help you set up your business, procure materials, and more. Six percent take the deal, then either receive nothing in return or the false provider performs some work and then vanishes. Businesses lose around $300 per incident.

Vanity Awards

One of the most emotionally painful small business scams is the promise of some type of award. For instance, the company might tell you that you’ve won “best employer” or “most innovative” for the year, then inform you that you can’t claim the title until you pay. Thankfully, just four percent of businesses succumb to this scam and only lose around $50.

Government Agency Imposter

Fake calls from the government, especially the IRS, are among the most common scams a company will face. However, most businesses are aware of this scam, and only three percent fall for it, losing around $275. As we cover in our article on IRS liens, your first contact from the IRS will be a Collection Due Process letter, not a phone call. If you receive one and it seems off, contact the IRS directly using the information provided on the website if it differs from the details in your letter. Most government agencies follow similar protocols, so reach out to the agency in question directly if you ever receive a phone call instead. 

Supply Company Scams

Although the BBB doesn’t specifically mention supply company scams, the FTC does. In these cases, some companies may bill for something that never arrived or you didn’t accept. Others will ship you items you didn’t order and then demand payment.

How to Avoid Business Scams

You should now have a firm grasp on the most common scams and the hallmarks of a scam. Let’s explore how to prevent scams.

Build a Digital Moat Around Your Business

If you’re working out how to avoid business scams, start with your digital setup. Secure devices, files, and networks with good antivirus and antimalware software. An antivirus program will catch things like phishing emails that your team might inadvertently click on. An antimalware program will help ensure malware doesn’t get on your system and prevent it from talking to the outside if it somehow makes it onto one of your systems. This removes the human element and thwarts most social engineering attacks before they start.

Educate Employees and Establish Safety Protocols

Next, educate your team on how to avoid scams. Share this article with them and walk them through what to look for. You’ll also want to establish safety protocols, like those covered throughout this article, and share those with your team too.

Verify Vendors and Payees Before Making Transactions

One of the main reasons large companies take so long to pay is that several people must review each invoice and sign off before a payment is made. This might not be feasible for small businesses, but you should at least have some process in place to ensure each entity being paid is legitimate and that the balance they’re requesting is accurate. It’s also worth noting that you are not responsible for paying for items you receive that you did not order, per FTC guidelines. Sellers are responsible for following certain protocols when there are delays in shipping too.

Be Wary Unsolicited Offers

Keep a keen eye out for unsolicited offers from businesses you don’t do business with. If you want to do business with a new vendor, thoroughly vet them by exploring their online reputation, especially on sites like the BBB.

Only Work with Trusted and Verified Lenders and Financiers

It’s always better to work with entities you know and trust. If you receive an external offer you’d like to take advantage of, consider contacting a current vendor to see if they’ll match it.

Stay Up to Date on the Latest Scams

New small business scams pop up all the time. To ensure you have the latest information, sign up for scam alerts at FTC.gov/Scams. If you’re worried a scammy business has contacted you, run a search on the BBB Scam Tracker.

What to Do if Your Business has Been Scammed

Whether you want to know how to get a scammer in trouble or want to warn others so they don’t fall victim to the same scam, the process is the same.

Report Small Business Scams to the FTC

Visit FTC.gov/Complaint to report scams and fraud to the FTC. The agency will share your report with more than 2,800 law enforcement agencies, so there may be no need to report to additional agencies. This gets the legal ball rolling.

Report Scams to the Local Authorities

If your small business experiences any kind of loss, report the incident to the local authorities to ensure a police report is created. This may be needed if you file a claim later or to aid in an investigation.

Report Scams to the BBB

The FTC will make information public when it feels it has a strong case, but the BBB has a much lower threshold for sharing information and is one of the primary places businesses go to confirm a business’s reputation. That means you can potentially spread the word faster by reporting your incident to the BBB too.

Inform Your State Attorney General

Sometimes a State Attorney General will spearhead an investigation, which can lead to lawsuits as well. You can find contact information at NAAG.org.

If Impersonation is Involved, Report it to the Entity Being Impersonated

Lastly, it’s always a good idea to report impersonation to the entity being impersonated. Financial institutions, insurance companies, utilities, and other organizations often blast alerts to their clients when they know someone is pretending to be them. Although this won’t always help bring your scammer to justice, it may help another small business from becoming a victim.

Report to Agencies as Required by Law or Contract

Do not consider this to be a definitive list. Specific industries and businesses may have additional requirements to fulfill. For instance, healthcare providers are typically required to report patient data breaches, and companies that process credit card payments may have additional reporting obligations. If you’re unsure who to report an incident to, consult an attorney specializing in your industry.

Guarding Against Common Scams in Business

Small businesses are increasingly vulnerable to a variety of common scams, making it crucial to understand how to protect your business. Scammers often target businesses with tactics such as fake invoices, phishing, and bogus directory listings. Recognizing these scams targeting businesses, especially those that are common among small business scams, is the first step in safeguarding your enterprise. Agencies like the Federal Trade Commission (FTC) and the Better Business Bureau (BBB) frequently report on scams that target small businesses, offering valuable resources to help business owners identify and avoid falling victim to these fraudulent schemes.

It’s vital for small businesses to be aware of the warning signs of scams, such as unsolicited phone calls or emails from scammers pretending to be a trusted supplier or charity. Invoice scams, directory scams, and tech support scams are among the most prevalent, exploiting the vulnerability of businesses in their daily operations. To effectively report scams and protect sensitive information about your business, it’s recommended to maintain up-to-date contact information with entities like the Attorney General’s office and the Small Business Administration. By staying informed and vigilant, businesses can minimize their risk and ensure they are not easily susceptible to the fraudulent activities of scammers. Always remember that taking a few minutes to research the organization or verify the authenticity of a solicitation can save your business from significant losses and maintain the trust of those you know and conduct business with.

Get Working Capital to Shore Up Your Weak Areas

You now know how to identify and avoid business scams, but what can you do if you need to address vulnerabilities or don’t have the working capital to recover from an issue? If you operate a B2B business, invoice factoring can unlock the cash in your unpaid invoices. To learn more or get started, request a complimentary rate quote.