There is nothing friendly, nice, or sweet about friendly fraud and it affects everyone.

According to the Wall Street Journal, companies have seen at least a 50% spike in friendly fraud since Oct. 2008. The recession is leaving consumers with an inability to spend money and purchase the things they either need, or want, and are resorting to fraud.

The most common types of friendly fraud involve cases in which a customer falsely claims they:

• Never received an item ordered online;


• Received the wrong item ordered online; or


• Had their credit card stolen and were charged for items they didn’t order.

Customers then demand a refund from the business or issue a chargeback on their credit card. The first two cases are generally simpler to carry out, and the last one is a bit harder due to the “it wasn’t me” chargeback.

In any case, friendly fraud is a damaging practice for businesses. Not only are businesses losing the money that they shell out for customers committing fraud, but they are losing the money they would have made on the purchase, as well as the money spent to manufacture and ship the product. An even bigger problem is businesses that have accumulated a number of chargebacks to customer accounts due to friendly fraud receive higher fees by credit card companies and banks.

These friendly fraudsters are very good at what they do. They know how to coax businesses to issue a refund, as well as what to do if businesses refuse reimbursements. These customers will then turn to credit card companies to issues chargebacks, causing a headache for all parties involved. When this occurs, creditors will start an investigation on the customer and business, asking each for their side of the story.

In many cases, the business is unable to provide adequate proof showing the customer either received their items or their card was not stolen, and the customer receives an undeserving refund.

While it is no easy task to defend yourself against friendly fraud, the Better Business Bureau offers the following advice for small business owners:

Verify the buyer’s billing address before sending merchandise. Some retailers require that the billing and shipping address match before fulfilling an order. However, some businesses have found that simply paying for an address verification service, which confirms that the billing address matches the address associated with the credit card, is sufficient.

Use a shipper that tracks delivery. Some shipping firms provide tracking information and signature confirmation. Such information can help shed light on whether or not the customer really didn’t receive the goods.

Deactivate or deny access to products. For retailers that do not ship tangible items, but rather items such as downloads or access to sites, a plan for denying access is both prudent and practical.

Clearly state your return policy on your website. This includes any product guarantees, time restrictions, condition requirements or fees—such as for restocking.

Be prepared to make your case to the credit card company. Staying organized and presenting a solid case—including records of delivery or reimbursement and your return policy—in the face of a chargeback will assist the credit card company, and increase your chances for a favorable resolution.

Analyze sales records. This can help you identify consumers who charge back items on a regular basis, enabling you to decide whether or not to stop doing business with them. —Cheryl Sowa