“Don’t be paranoid of crooks and thieves lurking around every corner, but keep in the back of your mind a little sense of when you need to be careful.”

After you’ve been in business for a while you learn that there are an awful lot of people out there who spend their lifetimes trying to rip off small businesses! Beware of some of the common issues that I have encountered.

The Classic “Customer” Fraud

Is your new customer a fraud? Years ago, I received an order for books from a library wholesaler in Michigan. Because he had limited credit and bank references, I shipped his first order on a COD basis. Then he placed a much larger order worth several thousand dollars. I again insisted on COD payment, but we never got paid. No, the check didn’t bounce; he stopped payment on it, which made it more difficult for us to get legal authorities to help us.

Eventually, enough publishers were ripped off that he was prosecuted, convicted, and put in jail. I heard he had converted his assets to gold bars, but I never saw a penny.

This is a common pattern in fraud cases—when the criminal pays for a small quantity of merchandise to build your confidence and then later places an order and tries to disappear with a much larger amount.

What Number Did You Dial?

Does your business use voice mail on its phone lines during off-hours? A couple of years ago, an operator of a phone-sex service reprogrammed our corporate answering machine to direct all of our off-hour incoming calls on our 800 telephone number to the sex service!

This is not an uncommon scam—often, larger corporations with busier phone lines are targeted. Amazingly, all of the phone companies we contacted said that they had no recourse against the phone-sex operator. While this kind of scam may not cost you a lot of money, it certainly can be embarrassing!

And, of course, links on websites can be redirected to places you don’t want them to go. Be aware of it. Fix it. But don’t let it get you down. It happens to plenty of other businesses, too.

Beware of Business Opportunities That Sound Too Good to Be True

If you’re thinking of responding to a business opportunity ad—watch out! Fraud and rip-offs run rampant. If it sounds too good to be true—like “Make $35,000 a year part-time stuffing envelopes”—don’t touch it!

Hot businesses today—including 900 telephone number services and computer-related businesses—are ones to be particularly careful of. I have heard of people investing $25,000 in a computer-related business and still having no idea how to go out and get customers!

Check to see whether the Better Business Bureau or your state’s consumer protection office knows anything about the business. But remember, government agencies are generally very slow to respond and shut down business opportunity scams. So take the matter into your own hands and visit plenty of current operators before you invest a penny!

Is It Really an Invoice?

As a manager, you’re too astute to fall for most mail frauds, but do you open all the mail and okay all the payables?

More and more businesses are sending out marketing pieces designed at first glance to look either like invoices or official government correspondence. And then there are the real scam artists. For example, my office received an invoice for a $425 subscription to a secretary’s magazine, for a woman who no longer worked at the company.

From time to time, I receive a copy of the infamous Nigerian letter that explains how I can make a fortune by helping some Nigerian businesspeople avoid currency controls. All I have to do is give these people access to my bank account. Amazingly, hundreds of people have lost millions of dollars to this long-lived scheme.

Last-Resort Lenders

Individuals and businesses that are running out of money and desperately need financing are prime victims for money-lending scams. Never pay cash up front to obtain a promise of lending or access to lending or financing sources.

Takeaways You Can Use

  • Small businesses are victims of fraud every day.
  • Fake invoices and fraudulent customers are typical issues.
  • Avoid last-resort lenders.