How to Lower the Risk of Payment Fraud

Business owner completing a transaction.
Businesses of all sizes are victims of online payment fraud each year, suffering cash losses as a direct result. As well as the monetary impact, businesses suffered other consequences such as lowered staff morale and a negative influence on client relationships.

Payment fraud detection can be difficult – you want to assume payments for goods or services are legitimate. Because there are a number of ways to commit payment fraud, it’s vital that you are aware of fraudsters’ tactics. This knowledge is important not only for how you receive payments, but also for how you’re paying your creditors.

How does payment fraud occur?

Among the most common methods of payment fraud are the following: 
  • Returning of products – watch out for customers returning products they didn’t buy from you – or customers who pick up products in store before walking up to the counter for a cash refund.
  • Stolen credit cards – ask for some photo ID if you’re suspicious of a customer, and double check signatures. 
  • Bad checks tend to bounce if they’re stolen or a customer’s account is empty. Avoid accepting checks if you can. Instead, ask for a credit card with identification.
Although payment fraud tends to happen most commonly in retail businesses, they’re not the only ones vulnerable. Fraud can happen when people order products online and then don’t pay for them, or they use your service and then find a reason not to pay the bill.

Online businesses often experience payment fraud when customers have paid by credit card. The funds appear in your account and you send them the goods – should be safe, right? Not always – a common trick is that the customer will cancel the payment after 3 days and the bank reverses the funds.

Another type of fraud occurs when a new customer places and pays for a very small order for equipment or goods. They then place a very large order without paying, which you send because of the new relationship. You may not see payment for this fraudulent order.

How can I prevent payment fraud?

As in most cases, prevention’s always better than a cure. It’s far better to have measures in place to prevent payment fraud from happening than to chase down the scammers.

Some of the best ways to avoid payment fraud are: 
  • Training employees – they’re on the front line. It’s really important to give them the tools and training to spot fraud at the source by regularly reviewing examples of fraud, and your business policy on what to do. 
  • Daily finance review – keeping tabs on your bank accounts to monitor what goes in and out. Reconciling records daily allows you to spot inconsistencies early, before they become a problem. 
  • Procedures for release/transfer of funds – document everything. Identify the main types of payment fraud that could impact your business. Then, clearly outline how to prevent it. Consider separating responsibilities for creating and approving any transfer of funds. Make sure your employees understand and include complying with these rules as part of their employment. 
  • Stay informed – talk to other business owners, spend some time researching online, and in general keep your eyes peeled for news of any recent frauds that might be operating. 
  • Background checks – if you’re even slightly suspicious, there’s nothing wrong with checking up on a customer. Search for them online or on social media, ring up the company, or conduct a credit check.

Checks – the most common criminal method

Checks are one of the most commonly used methods of payment fraud, even today. They’re costing businesses millions of dollars because they’re so easy for fraudsters to steal. And because there’s a delay between depositing the check and having the funds cleared into your account, customers hope to receive the goods before you’ve discovered you haven’t been paid after all.
You should try to avoid paper checks, both for making and receiving payments.
Read more: Secure Payment Solutions from SouthState


Your goal should be to protect your business from payment fraud using the most up-to-date payment options available and moving away from old paper-based systems. The better the technology, the better the security will be, and the harder fraudsters will find it to get around the systems.

Secure Log In

Close login menu
Login Error

Your username is valid but has a problem. Please call customer support

Our website uses cookies to ensure your online experience is as informative and relevant as possible. Please review our Privacy Policy to learn more about the information we collect.