Are businesses vulnerable to fraud?

 

One our investment portfolio companies, Music Room Direct, is a small internet retail business that supplies musically themed goods via online sales that are paid by credit card when the order is placed.

We were horrified to find that once the goods had been delivered the credit card transaction could be cancelled and the funds recalled. We immediately contacted our bank’s credit card administrator, who sent a form asking us to respond within 10 days.

We complied immediately but were horrified to find that our bank had already refunded the customer.

Fortunately on this particular occasion we were able to contact the customer who acknowledged their mistake  as an accounts department error and repaid the money immediately.

But when we questioned the administrator, Global Payments, which administers credit cards for several mainstream banks, it transpired that there is absolutely nothing we can do to protect ourselves from clients claiming a refund of the transaction.

While we acknowledge that consumers should be protected, this system clearly offers scope for the less scrupulous and fraudsters to order and pay for goods then to reclaim a refund when the goods arrive.

Have you come across this or any other “loopholes” that make small businesses vulnerable in a similar way?

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