Small Business Scams and How to Avoid Them

Scams can affect any business, no matter where they are, how big they are, or what industry they are in. But these fraudulent schemes are especially problematic for small businesses — they are more vulnerable to scams because they have no cybersecurity support and their accounting processes are often not as established as those of larger companies. 

If you own a small business, you no doubt put a lot of effort into making sure everything runs smoothly. However, when scammers target your organization, it can seriously damage your reputation and end up costing you a lot of money. Your best protection is to learn about common small business scams and teach your employees to recognize and avoid them as well.

Small Business Scams and How to Avoid Them

Common small business scams

  • Phishing Scams

Phishing scams are sneaky attempts to steal sensitive information about your business by manipulating you or your employees into revealing passwords or even bank information. Usually, it all begins with an email, social media message, or a phone call that appears to be from someone you trust, like your boss or a higher-up, creating urgency or fear. Other emails resemble routine password update requests or other automated messages. 

Scammers also employ malware to lock and hold your company’s files for ransom. This can lead to significant disruptions to your business operations and jeopardize your sensitive data.

  • Business Email Compromise

Business email compromise is one of the phishing scams that usually targets people who handle bill payments for businesses, nonprofit organizations, and the government. Records show that this type of scam is among the most reported in Canada and has resulted in the most losses in the United States

In this type of scam, the perpetrator, who poses as a vendor or other trusted source, emails the chief financial officer or accountant, requesting that they buy gift cards, send personal information, or wire money for a probable reason. The money then enters an account that the perpetrator is in control of.  

  • Directory Scams

This scam has been causing headaches for businesses for a very long time. The perpetrators in these scams try to trick businesses into thinking they need to pay for an ad space or a listing in a directory that either doesn’t exist or won’t be shared with potential customers. 

Sometimes the scammers may even pretend to be from a well-known directory, like the Yellow Pages. Whatever the case, the business ends up getting charged hundreds of dollars for ads that were never placed or for listing services it never agreed to.

  • Phony Invoices

Scammers are so crafty that they come up with these fake invoices that try to mimic the ones you receive for products or services your business uses. It could be anything from office supplies to cleaning supplies or even domain name registrations. 

They are hoping that the person responsible for paying your bills will mistakenly think that the invoices are for items that your company actually purchased. Con artists are aware that if they send you an invoice for something really important, like maintaining your website, you might just pay it without thinking twice, and when you do, your money is lost. 

  • Overpayment Scams

This scam involves a person you are doing business with sending you a check payment in excess of what they owe you and then later providing instructions on how you should return the balance to them. You end up sending the money to them and then later find out that their check bounced, leaving you responsible for the full amount — the amount they owed you as well as the balance that you wired to them.

  • Stolen Identity

The identities of legitimate businesses are often used by scammers to deceive customers. These scammers create bogus websites using your business’s name, address, logo, and content. You don’t necessarily lose any money in this scam, but it does tarnish your reputation — something that is very difficult to recover from.

  • Unordered Products and Supplies

Your business receives a call from someone claiming that they need confirmation of an order, that they want to offer a free sample or catalog, or that they need to verify an address. When you comply, some merchandise arrives at your address, followed by a series of demands for payment. The scammers even go as far as playing a recording of the earlier call as evidence that the order was placed. 

How to avoid small business scams

  1. Ensuring that your records are thorough will put you in a better position to be able to detect fake invoices or accounts. 
  1. Be meticulous about payment procedures. A multi-person approval process can be very beneficial, especially for transactions exceeding a certain amount.
  1. Avoid untraceable methods of payment as much as possible: gift cards, wire transfers, and pre-paid debit cards. When using these, ensure that payment requests are verified by an authorized source and that there is a paper trail.
  1. Make sure that whatever businesses bill you are businesses that you normally do business with or are familiar with. If not, perform your due diligence — verify the name of the person you speak with, the name of the company, its address, phone number, and website. Google and PhoneHistory are excellent starting points.
  1. Never divulge business information unless you know what it will be used for and that the information is only made available to people you know.
  1. Ensure that devices are all protected by the appropriate software and a firewall and that links in unsolicited emails are never clicked, as they can result in the spread of viruses or malicious software.
  1. Educate your employees on how to spot and avoid scams, as well as the importance of never disclosing business information.
  1. Knowing who you are dealing with is a surefire way to avoid scammers. Always search for a company’s name online before doing business with them — search with the terms complaint or scam. Look up what people are saying about the company. When you are looking for services and products for your business, it is a good idea to request recommendations from other business owners in your community. You will be a lot better off accepting positive word-of-mouth from people you trust as opposed to trusting sales pitches.

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Dyka Smith
Dyka Smith is a content marketing professional at Inosocial, an inbound marketing and sales platform that helps companies attract visitors, convert leads, and close customers. Previously, Dyka worked as a marketing manager for a tech software startup. She graduated with honors from Columbia University with a dual degree in Business Administration and Creative Writing.

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