In recent years, the ecommerce industry has experienced significant growth, and small businesses have been able to take advantage of this growth by selling their products and services online. However, with the rise of online transactions, comes the risk of fraudulent orders, which can have a significant impact on your small business.
Impacts of Fraudulent Orders on Your Small Business
Fraudulent orders refer to purchases made using stolen credit cards, hacked accounts or false information. The impact of such orders can be devastating for your ecommerce business, as they can result in financial loss, damage to reputation and legal consequences.
Financial Loss
One of the most significant impacts of fraudulent orders on small ecommerce businesses is the financial loss they incur. When a fraudulent order is placed, you might unknowingly ship the product or service, only to later discover that the payment was made using stolen credit card information or fake accounts. As a result, your business loses both the product and the payment for the sale, resulting in a financial loss that can be difficult to recover from, especially for small businesses with limited resources.
Damage to Reputation
Another significant impact of fraudulent orders on your ecommerce business is the damage to your reputation. When customers discover that your business has been involved in fraudulent activities, they are likely to lose trust in your business and may be hesitant to purchase from you in the future. This can lead to a loss of repeat customers, decreased sales and a damaged reputation that can be challenging to recover from.
Legal Consequences
In addition to financial loss and damage to reputation, fraudulent orders can also lead to legal consequences for your ecommerce business. If your business is found to have been involved in fraudulent activities, you could be held legally responsible for your actions, which can result in fines, lawsuits and even criminal charges.
How to Avoid Fraudulent Orders
To avoid fraudulent orders, you can take several steps to protect your ecommerce business, including:
- Verifying customer information: When a new customer places an order, you should verify their information to ensure that it is legitimate. This can include checking the billing and shipping addresses, phone numbers and email addresses provided.
- Using fraud detection software: Many ecommerce platforms offer fraud detection software that can help businesses identify and prevent fraudulent orders.
- Implementing a secure payment gateway: Using a secure payment gateway can help protect your small business from fraudulent transactions by encrypting customer data and verifying payments before processing them.
- Training employees: Training employees to identify and prevent fraudulent orders can also be an effective way to prevent financial loss and damage to reputation.
Jane’s Story
Jane runs a small online clothing boutique. Recently, she received a new order notification. When she opened the order details on Shopify, she saw a fraud warning that indicated that there was a high risk of fraud detected.
As a business owner, it’s important for Jane to do her due diligence to confirm that this is, in fact, a fraudulent order. If she cancels the order and it is legitimate, she could be risking her business reputation. In the age of social media, consumers will not hesitate to post negative reviews if they encounter a perceived negative experience, causing damage to your brand.
The first red flag Jane noticed on this order is that the customer attempted multiple payment options in a very short period of time before one was accepted.
This set off warning bells, so Jane decided to look more closely into the fraud analysis by clicking the “View Full Analysis” option in Shopify. The fraud analysis indicated that there were multiple failed payment attempts and the customer was using a high-risk internet connection (web proxy). Shopify was also unable to confirm the billing address, match the ZIP code with credit card address or verify the location of the IP address.
To investigate further, Jane followed the Shopify Help Center guidance to verify the information provided in the fraud analysis.
She started by searching the IP address and email address on Google. In her case, it didn’t yield any helpful information.
Next, she searched the mailing address. The results indicated that the order was placed by an export company. Furthermore, multiple reviews of this company indicated that other merchants have received fraudulent orders from this customer.
After this discovery, Jane had enough information to cancel the order.
Summary
Fraudulent orders can have a significant impact on your small ecommerce business, including financial loss, damage to reputation, and legal consequences. However, by taking steps to prevent fraudulent orders, you can minimize their risk and protect their operations.