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Money / Financial management

Combating credit card fraud

Online sales can be a soloist’s best friend, but there is a down side to the convenience of e-commerce: the financial risk of exposing your business to credit card fraud. Here are some tips for protecting your business.

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Credit card fraud involves the use of credit card details to make purchases or withdraw money without the cardholder’s permission. For small-business owners operating online, credit card fraud can be of great concern. This is because while Australian banks remain committed to refunding consumers for any financial loss due to fraudulent transactions, the seller is generally liable to pay for any chargeback (a reversal of the credit card payment to reimburse the consumer). This can result in a big – and sudden – exposure for a small operator.

Credit card scams are becoming more prevalent so it’s critical to have good security and compliance procedures in place if you are trading online.

Here are some preventative measures you can adopt to protect your business from credit card fraud:

"While Australian banks remain committed to refunding consumers for any financial loss due to fraudulent transactions, the seller is generally liable to pay for any chargeback."

  • If possible, use a verified online acquirer such as PayPal. PayPal keeps your financial information private and monitors accounts 24 hours a day, seven days a week from fraudulent transactions.
  • If you’re not using an acquirer, request the name of the cardholder’s bank and the three digit number (depending on the card) located on the signature panel of the credit card.
  • Be cautious of payments that involve a number of credit cards, several separate orders or large and complicated orders where transport is likely to cost more than the value of the product.
  • Only accept the invoiced price and do not send the goods until the payment is verified by your bank.
  • Ensure the customer’s billing address and delivery address are consistent.
  • Avoid sending goods to a public rented box (P.O. Box) as the actual location and identity of the receiver is undetectable.
  • Obtain a signed receipt from the cardholder when the goods are delivered (verified post).
  • Do not continue to attempt authorisation of an order after receiving a credit card decline.
  • Exercise particular caution when receiving orders that are being shipped to an international address.
  • If in doubt, request further identification from the consumer. This can include verification via a phone call or a request for photo ID to be emailed or faxed.

Want more articles like this? Check out the financial management section.

Although overall credit card fraud in Australia fell by 11 per cent in 2012 in value terms, the actual number of fraudulent transactions increased from 854,693 in 2011 to 969,876 in 2012. The main reason for the rise in fraudulent transactions comes as more Australians are shopping online, and are spending more money than ever before on individual online purchases. In 2011 alone, Australians lost $4.8 billion through direct cash and lost productivity to online criminals.

If you detect unusual activity on your credit card and believe you are a victim of credit card fraud, you should:

Have you had an experience with credit card fraud in your business?

Craig Jackson

is an experienced CPA and advisor. He is all about helping small businesses, freelancers, consultants and entrepreneurs navigate tax and compliance issues to achieve their goals.

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