Watch Out for Business Directory Scams

Every business owner knows there’s no such thing as bad publicity, especially when it’s free. Newspaper articles, business exchanges and other means to get more people exposed to your company’s name are great, especially if your business is small. When you don’t have a big advertising budget, these organizations can be a lifesaver.

Unfortunately, scammers realize that this desire for publicity is a powerful motivation. Scams targeting business owners involving fake business directories are on the rise. These schemes come in a variety of flavors.

One variant has the scammer call, fax or email asking the business to “confirm” or “verify” its contact information for a business directory. No discussion about price occurs. The scammer usually tries to target office professionals, receptionists and personal assistants who are more likely to be bullied into saying yes. In the case of a fax or email, the terms and conditions on the statement may include fine print about exorbitant listing fees. Of course, there is no directory, but that won’t stop them from billing.

After the initial contact, the next step is a slew of invoices marked “urgent,” for anywhere from a few hundred dollars to thousands. Many scammers are counting on a low-oversight accounts payable system, where invoices are posted and paid without much investigation. If the invoice is not paid, the scammer will escalate to collection notices and calls, and may threaten the business’s credit. They may even discuss litigation.

At this point, the scammer will usually offer a “settlement” amount which seems incredibly generous. This is a powerful psychological tactic which takes advantage of the contrast effect. Paying $500 when you’ve previously been told you have to pay $1,000 seems much more reasonable than just being told to pay $500.

Other variants may claim to confirm Yellow Pages listings. They may also claim to represent a charity network and target small not-for-profit groups like churches or community food banks. The process is the same in all cases.

Authorities suspect the scams originate in a small number of large call centers located outside the U.S. Recently, the FTC filed suit against a Montreal-based call center which had defrauded thousands of businesses and charities in the U.S. Despite these charges, the scam continues to grow in popularity.

If your business or charity is targeted by this scam, there are a few things you need to know. To keep your business out of trouble, make sure you do the following:

Protect and Educate your Employees

If you have a marketing department, establish a policy that all promotion efforts go through that department. Add language to your employee handbook or other documentation specifying who is authorized to make promotional deals on behalf of your business. Make sure it’s written down and that your employees know about it. This language will protect them should they be the ones to sign one of these fake agreements.

Also, make it a point to discuss this and other scams with your employees during regular meetings. This scam preys on the unwary and relies on ignorance to make a cheap buck. Knowledge is your best defense!

Don’t Pay Them

If you notice an invoice like this, you should check with the Better Business Bureau in your area to see if complaints have been filed against the organization that issued it. If there is, you should store the invoice somewhere safe. You should never ever agree to pay it.

Most of these “contracts” are unenforceable. Particularly if they use Yellow Pages branded icons and names to establish their legitimacy, they were agreements made under false pretenses. A verbal agreement, even one recorded over the phone, likely isn’t binding, especially if no discussion of price occurs.

Even if they were, the litigation to collect the debt would be hopelessly expensive. Reporting the debt to credit reporting agencies would expose the group doing the reporting to defamation liability. The bluster surrounding the collection process is just that.

Inspect, Collect and Notify

If you haven’t before, now’s a good time to take a look at your accounts payable processes. Make sure tight controls exist to ensure that invoices are checked for legitimacy before being paid. Double check to make sure you’re only paying for services you receive.

If you do get fraudulent invoices, don’t throw them away! File them in a safe place. You may need them to help an investigation of scammers down the line. They may also be helpful if you need to contest a report with a credit reporting agency.

You should also notify the FTC immediately. Misrepresentations like these over the phone, fax or email are a violation of FTC rules regarding advertisement. The FTC can be reached at 877-FTC-HELP or online at ftc.gov/complaint.

Be Proactive

The best way to stay ahead of this scam is to stay abreast of new promotional opportunities in your community. Your local chamber of commerce likely maintains a directory of local businesses and is an excellent place to start for help promoting your business. Get involved with local organizations and charities that represent the values of your business. Don’t sit back and wait for those opportunities to call you up. Get out and take charge of them yourself!

This article is for educational purposes only. WeStreet Credit Union makes no representations as to the accuracy, completeness, or specific suitability of any information presented. Information provided should not be relied on or interpreted as legal, tax or financial advice. Nor does the information directly relate to our products and/or services terms and conditions.