Connecticut Better Business Bureau Warns Companies to Beware of “Friendly Fraud”

Wallingford, CT - October 13, 2009 – Better Business Bureau is warning small business owners about a spike in “friendly fraud,” ruses used by customers to get goods for free. 

According to the Wall Street Journal, many companies are seeing as much as a 50 percent increase in friendly fraud since October, 2008.

In the most common types of friendly fraud, customers falsely claim they never received an order online, received the wrong item or had their credit card stolen and were charged for items they didn’t order.

Customers then demand a credit or refund from the company, or obtain a chargeback on their credit card.  Businesses lose not only the merchandise, but also whatever profit could have been made from the transaction.

While defending a business against this kind of fraud isn’t easy, there are steps that can be taken to prevent associated losses:

• Verify the buyer’s billing address before sending merchandise. Some retailers require that the billing and shipping address match before filling an order.  However, some businesses have found that simply paying for an Address Verification Service, which confirms that the billing address matches the address associated with the credit card, is sufficient.  

• Use a shipper that tracks delivery. Some shipping firms provide tracking information and signature confirmation.  Such information can help shed light on whether or not the customer received the goods.

• Deactivate or deny access to products. For retailers that do not ship tangible items, but rather items such as downloads or access to sites, a plan for denying access is both prudent and practical.

• Clearly state your return policy on your Web site. This includes any product guarantees, time restrictions, condition requirements or fees—such as for restocking.

• Be prepared to make your case to the credit card company. Staying organized and presenting a solid case—including records of delivery or reimbursement and your return policy—in the face of a chargeback will assist the credit card company and increase your chances for a favorable resolution. 

• Analyze sales records. This can help you identify consumers who charge back items on a regular basis, enabling you to decide whether or not to stop doing business with them.

A few proactive measures can prevent online “stock shrinkage” by friendly fraud and its associated costs and losses.

Business owners can find more helpful information on preventing fraud by visiting www.bbb.org.

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