If you’re a small-business owner who’s worried about the risk credit card fraud poses to the financial health of your business, you’re not the only one. Credit card fraud is a real threat to small-business owners, who often can’t afford to just eat the cost of fraudulent purchases, especially when those costs reach into the thousands of dollars. Small-business owners even run the risk of losing their merchant card processing accounts if they approve fraudulent charges. But what can small-business owners do to stay safe?
Thankfully, the answer is: a lot. Fraudulent credit card orders may pose a big threat, but small-business owners can protect themselves by checking card users’ IDs and signatures. When taking card orders over the phone or online, watch out for suspicious sales and take steps to verify that suspicious sales are legitimate. Not all suspicious sales will turn out to be fraudulent, but it’s better safe than sorry, and card owners themselves will appreciate your care in verifying that their cards are being used appropriately.
Verify Card-Present Sales
A card-present sale is one in which the credit or debit card holder presents his or her card in person at a point of sale. There are two very important things you can do to verify that card-present sales are legitimate. The first is to verify that the person handing you the card is, indeed, the person authorized to use that card. The second is to check the card for security features that will let you know it’s a real card.
Anytime you take a credit card sale in person, it’s a good idea to ask the cardholder for ID. Address the person by the name embossed on the card; if they don’t respond immediately, that could be a red flag. Compare the signature on the card to the signature on their ID. If the cardholder refuses to show ID, you might want to refuse to authorize the sale.
You can also prevent fraudulent card-present sales by checking cards for security features. This way, you can be sure that the cardholder is using a real card issued by a bank, and not a counterfeit card that uses stolen information. Look for:
- A color-change hologram;
- An account number embossed on the front of the card, and a matching number printed on the back, along with a CVV;
- A magnetic strip; and
- An erasure-proof signature panel on the back of the card that keeps the cardholder’s signature in good condition.
These days, most credit and debit cards should also have an EMV chip. If you’re handed a card that seems suspicious, call your payment service provider to request a transaction authorization over the phone.
Verify Card-Not-Present Sales
Card-not-present sales, or sales that take place online or over the phone, pose perhaps an even bigger risk of credit card fraud to small-business merchants. You should always require a CVV number for phone and online purchases, because this prevents fraudsters who have only a credit card number from placing orders. You can further protect yourself from fraudulent credit card sales by regarding all card-not-present transactions with a critical eye. Watch out for:
- Rush orders of expensive items or large quantities of goods
- Unusually large orders, especially if you’ve had no direct contact with the buyer
- Missing contact information
- Orders shipped to foreign countries, but paid for with a U.S. card
- Orders originating from foreign countries
- Different shipping and billing addresses
- A different billing address than that on file with the credit card company
- Inquiries from customers promising to place a large order if you send them a list of your inventory.
While these red flags may not necessarily indicate that an order is fraudulent, they warrant further investigation. Use the card issuer’s address verification service to make sure that the billing address you’re given matches the billing address on file with the card issuer. You may want to use a service that automatically blocks suspicious orders based on where they originate from. You can also choose to call a customer and verify the transaction before approving it; most customers will appreciate your diligence in making sure that transactions are legitimate.
These methods of protecting yourself from credit card fraud may not be completely foolproof, but with due diligence, you can protect your small business from most fraudulent transactions. Don’t lie awake at night wondering if credit card fraud will sink your business; take action to keep your company safe.