Friendly fraud: How it affects small businesses and how to avoid it

Have you ever got charged for something you did not buy? This is the reality for many other customers, but this is also the easy excuse some use to rob businesses. Friendly fraud is also known as chargeback fraud: Customers debate a valid charge, saying they do not authorize it, even after receiving what they've ordered. Friendly fraud can be unintentional, but according to Global Risk Technologies, 86% of chargebacks are intentional and unlawful.

Keep reading to find out how friendly fraud affects small businesses and how to avoid it.

How friendly fraud affects small businesses?

The friendly in friendly fraud does not negate the amount of damage it can cause a business. In fact, LexisNexis reports that businesses lose at least $3.75 for every one dollar lost in chargebacks. Financial loss is one of the main ways that businesses are impacted by friendly fraud. However, it can also cause administrative burden, because it takes a lot of time and effort to resolve and damage businesses' reputations in instances where such an incident goes public. Overall, friendly fraud puts an immense strain on small businesses and can even lead to demotivation and business failure.

How to protect your business from friendly fraud?

Considering the effect friendly fraud has on businesses, it becomes even more important to protect your business. There are several ways to do this, here are four:

Make clear policies

You have to set ground rules to make it harder for fraudsters to rob your business. Not only will they be aware of the consequences of disputing a charge with bad intentions, but you will also have more authority to take legal action against them.

Document everything

Nothing beats proof, right? It is one of the best ways to provide legitimacy if charge disputes arise. So while it might be challenging, it is important to implement systems to save data like transaction dates, confirmation emails, delivery confirmations and shipping receipts.

Leverage technology

There are two ways to use technology to protect your business from friendly fraud. The first is with authentication methods like 3D secure that adds an extra layer of security to shift chargeback liabilities from businesses to the card issuer. The second way is by using fraud protection technologies to identify and implement transactional rules before chargeback frauds happen.

Looking to protect your business from friendly frauds? Reach out to the Law Offices of Donald W. Hudspeth, P.C.

Categorised in: Starting a Business in Arizona

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