Preventing Fraud & Chargebacks: 15 Tips Thieves Don't Want You to Know

People who perpetrate fraud know a simple truth: The merchant almost always pays. It doesn't matter that you're an innocent bystander—consumers simply have more protections, and thieves are hard to catch. When you tally up the costs of stolen merchandise, unrecouped shipping and transaction fees, and chargeback fees associated with a disputed purchase (typically between $10 and $25 per chargeback, depending on your merchant bank), you can see that it pays to be vigilant about fraud prevention. Even if you think your business is safe—either because you know your customers or because you sell items or services that you think unlikely to be stolen—it's important to consider the other end of the fraud cycle: Are you exposing customer credit card information to would-be-thieves?

This article offers 15 tips to help you protect against fraud. We've also compiled tips for preventing unnecessary chargebacks and for helping to protect customer data so that you can stop the cycle of fraud.

1. Recognize common "red-flags" of fraud.
2. For face-to face transactions, know and check the card's security features.
3. Swipe or imprint and get a signature, whenever possible.
4. Key-enter the last four card number digits into your terminal.
5. Compare signatures with a government-issued ID.
6. For wholesale customers, request references and do a credit check.
7. For phone, fax, and mail order (keyed) transactions, ask for extra information.
8. Think twice before shipping.
9. Always enter an address and heed Address Verification Service (AVS) warnings.
10. Establish a fraud prevention plan for your business.
11. Report suspected fraud right away.
12. Know how your business name appears on customer credit card statements.
13. Reduce chargebacks with timely shipping.
14. Help stop the cycle of fraud.
15. Train your staff to take the same steps.

1. Recognize common "red-flags" of fraud. You should pay extra attention when a customer:
   1. Is in a big rush to process the transaction and exit your place of business, or requests express shipping on expensive merchandise. Take your time and prevent a potential crime.
   2. Asks about your authorization limits or refund policy.
   3. Makes large purchases but doesn't seem to care about the details of what they're purchasing— especially if the totals fall just under the amount that would require an authorization call.
   4. Makes several repeat purchases, over a very short period of time.
   5. Hasn't signed the back of their card or does not have identification.
   6. Attempts to use a card before or after its valid dates.
   7. Gives you information that does not match the card issuer's records.
   8. Has a suspicious email address that doesn't match the cardholder's name or that comes from a free Internet mail provider.
   Of course, many of these issues can come up during a legitimate transaction. You know your customers best and should use your best judgment. Remember that most legitimate customers will understand if you take a few extra moments in the name of preventing fraud.
   
   
2. For face-to face orders, know and check the card's security features.
   
3. Swipe or imprint and get a signature, whenever possible. In case of chargebacks, your best protection is to keep the original copy of the customer's signature on a card-present credit card receipt or a manually-imprinted receipt. If you must key-enter credit cards, it helps to keep records of any customer interaction to help prove that the customer actually authorized the charge.
   
   Please note that the default QuickBooks credit card receipt does not list the goods and services purchased, so you may also want to attach a copy of the corresponding Sales Receipt or Invoice for your records. If you haven't already, you can set up an all-in-one Sales Receipt template that includes both line item detail and a signature line. From the Template drop-down list, chose Download, and then click "Download report and form templates."



4. Key-enter the last four card number digits into your terminal. This step can be turned off, but it offers an extra protection when you swipe a card.



5. Compare signatures with a government-issued ID. It's just not worth the risk. If customers balk at your unwillingness to accept an unsigned card or claim not to have their ID, remind them that this is for their protection and for your credibility as a merchant. Legitimate customers should appreciate your attention to their security.



6. For wholesale customers, request references and do a credit check. If you deal in large orders of easily-resold electronics or other goods, ask for the names of at least two other companies with whom your customer already does business. Legitimate businesses will not object and thieves may be deterred, realizing you're not an easy target. Also, watch for sudden changes in ordering habits or changes in ownership, as criminals sometimes purchase legitimate businesses and start fraud schemes using the prior company's good credit. It may be valuable to set an expectation with your customers that you will periodically update their credit check, as a safeguard.



7. For phone, fax, and mail order (keyed) transactions, ask for extra information. Any of the following details can help:
   1. Cardholder's name, exactly as it appears on the card.
   2. Cardholder's complete billing address (no PO boxes).
   3. "Good from" and "Good thru" dates of validity for the card.
   4. Card verification code.
   5. Name of the issuing bank and its phone number, both of which should appear on the card.
   6. Phone numbers for the billing and shipping addresses.



8. Think twice before shipping.
   1. If possible, deliver orders only to the credit card holder's AVS-verified billing address.
   2. Do not ship to PO boxes and be wary of suite numbers that may be stand-ins for PO boxes.
   3. Require signed proof of delivery.
   4. Always mail an order confirmation to both the billing and shipping addresses.
   5. Remember that international addresses cannot be checked with AVS.



9. Always enter an address and heed Address Verification Service (AVS) warnings. Please note: Your transaction will go through, regardless of the AVS code. It is up to you to void a transaction if the address does not match. You and your staff should know what the AVS codes mean and how to respond to them.




What do the AVS codes mean?
Match	The address information you entered (street and zip code, or just zip code) matches the address information on file with the cardholder's bank. Your transaction will be processed.
No match	The address information you entered does not match the address information on file with the cardholder's bank. Your transaction will still be processed. If you suspect credit card fraud, you should void the transaction.
Not required	Address verification is not required when you swipe a credit card. The magnetic stripe data process that the card was physically present.
None	Address checking is not supported by the cardholder's bank. Your transaction will still be processed. If you suspect credit card fraud, you should void the transaction.




10. Establish a fraud prevention plan for your business. Before you or your employees encounter fraud face-to-face, you need an action plan. For example, if you get an authorization response that asks you to hold a customer's card, how will you handle it? Customers may become angry and it's important to be prepared to deal with these situations. Be sure to create a company policy and train your employees about how to proceed. You can start by sharing this month's Success Report with your employees.



11. Report suspected fraud right away. If you can do it without letting your customer know, dial your voice-authorization number and request a Code 10 authorization. You'll be asked yes/no questions and receive guidance about what to do. For more information about seeking a voice authorization, please see, How (and Why) to Obtain and Process a Voice Authorization in this issue of the Success Report.



12. Know how your business name appears on customer credit card statements. Many merchants get caught in easily-prevented chargebacks, simply because their business names are truncated or otherwise unrecognizable on a customer's credit card billing statement. To prevent avoidable chargebacks, run a test purchase with your own credit card to see how your company name appears on credit card billing statements. Then modify your QuickBooks Sales Receipt or, if necessary, work with your merchant account provider to change the way your business name appears on credit card billing statements.



13. Reduce chargebacks with timely shipping. Because you don't know when the customer's next credit card billing statement will arrive, it's important to ship products as quickly as possible after processing a credit card payment. Many preventable chargebacks occur when a customer sees a charge on a billing statement for a product they have not yet received.



14. Help stop the cycle of fraud. Even if you think you've taken every step possible to prevent fraud against your own business, there is one more step you can take: Help protect your customers' credit card information. When you print credit card receipts and Invoices or Sales Receipts from QuickBooks, your customer credit card number will not be displayed in full. This makes it difficult for thieves to skim customer credit card information from your place of business. Please note: If you take phone orders, if you must take written notes, take care to shred these notes immediately after processing an order in QuickBooks or, if you've written the credit card number on a document that you must save, black out all but the last 4 digits of the credit card number immediately after entering the transaction into QuickBooks.



15. Train your staff to take the same steps. Your employees are likely to be on the frontlines of fraud prevention for your business. Be sure they know how to recognize the red flags of fraud and how to process credit card transactions taking every fraud protection step we've outlined.


Preventing fraud and chargebacks takes foresight, education, and planning. Working together, you and your employees can help deter would-be thieves and lower fraud-related costs for your company.