Side effect of economic crisis: SMEs more vulnerable to scams

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Writuparna Kakati | 01 Jun, 2009
An exporter dealing in readymade garments receives an e-mail enquiry about his products requesting purchases on credit. The business making the request purports to be from the US. The exporter responds immediately with price. At that point the business making the request accedes quickly and asks for some free samples. Is this the start of a scam ?

The lousy economy has an unexpected victim - Small and Medium Enterprises (SMEs) which are desperately trying to boost their cash flow in these bad times. More and more SMEs are reporting in these days an increase in fraudulent enquiries from previously unheard of businesses, often from overseas. A new crime wave has exposed businesses to a high risk.

Several recent surveys have found that SMEs are increasingly exposed to scams as the global financial crisis tightens its grip on economies across the globe. According to US Federal authorities, online fraud increased by 33 per cent in 2008, and likely to increase more in 2009. A similar report by Gartner shows that, 5 million online customers lost money to phishing attacks during the year ending September 2008.

The message from all these surveys is simple: These are tough times for businesses, both small and big, across the world. Businesses, particularly the SMEs, with economic woes have become an easy pray to fraud. In their aggressive pursuit of new business opportunities to prop up falling revenue and profits, SMEs are being lured into fraudulent deals as never before.

So how to avoid the bad guys? For most part, fraud preys on SMEs which fail to understanding what is happening. It is why, educating themselves is a must for SMEs, especially those which are engaged in export import activities. Find below a few tips which can help you know whether a product, service, offer, or business is legitimate:

Purchase merchandise from reputable dealers or establishments. Beware when responding to e-mail that may not have been sent by a reputable company.
Purchase merchandise directly from the individual/company that holds the trademark, copyright, or patent.
Ask for a physical address rather than merely a post office box and a phone number; call the seller to see if the number is correct and working.
Ask them to phone you. Normally scammers won't call you. But beware, sometimes they play a dirty trick. They may call you using call redirection or fax to email services so that the number appears just like one listed in the USA or UK where in reality they are located elsewhere.
Send them e-mail to see if the sender of an e-mail have an active e-mail address. Beware of those that utilize free e-mail services where a credit card is not required to open the account. Legitimate companies can afford the small amount required to acquire and maintain a domain and related company email account.
Don't get excited. Use your common sense to understand the offer; does he want to buy your product without asking about the price or quality? Has he accepted the deal without bargaining? Is he very quick to know your account number? Check all these things and only after that take the next move.
Undertake credit checks of potential customers and try to know who is behind that business. Conduct reference checks of potential suppliers.
Do not provide financial account information of your company unless there is a good reason to do so.
Get all the terms and conditions, modes of payment, sales conditions, quality inspection, etc. in writing.
Impose credit limits. Always choose Letter of Credit (L/C) as payment methods. Check the L/C number, opening date & place, name & address of the issuing bank, valid date, shipping date, etc.
If you are an exporter or supplier, request for a nominal payment for samples. On the other hand, if you are a buyer, ask for samples to ensure that the product quality meets your expectation.

Fraudulent activities are not new to the world of business, but the rate at which they growing during this recessionary phase of economy is making the bad times worse for businesses. Analysts forecast plenty of fraud in the coming days, and this time scammers are likely to adopt more sophisticated and innovative methods to prey on people's anxiety and trap in the downturn. So, businesses, particularly SMEs, need to be cautious about such threats.