If you’ve ever transferred money from one bank to another, you’ve probably heard of the Automated Clearing House (ACH) network. While ACH offers unparalleled convenience for both individuals and businesses by facilitating seamless, efficient, and cost-effective electronic money transfers, dangers are more common than you may think — according to J.P. Morgan, ACH payment fraud remains a core risk for businesses.1
Criminals can carry out ACH payment fraud when they have access to two pieces of information: a bank account number and a bank routing number. Armed with this information, they can fraudulently send lump sums, make recurring payments, or issue unauthorized payments for goods and services.
ACH fraud can damage cash flow, especially for small businesses with tight margins. Unfortunately, these are the very businesses that may lack the resources or technological capability to combat fraud. This is why it’s essential for small business owners to understand what ACH payments are and how ACH payments work. Using this information — and with the support of PayPal — the threat and impact of ACH payment fraud can be mitigated.
There are significant consequences to ACH payment fraud, especially for small businesses that may not have the means to implement large-scale fraud-detection measures. Any loss of revenue due to fraudulent payments can be harmful, as can the damage to a business’s reputation following a data breach.
That’s why recognizing warning signs and suspicious activity is so important — and why your business needs to be aligned with a provider of ACH protection, such as PayPal Seller Protection.
ACH fraud schemes involve deceptive tactics aimed at gaining unauthorized access to financial information or assets. One common scheme is an account takeover, where the fraudster gains access to a person's bank account through stolen login credentials. Once inside, they can initiate unauthorized ACH transfers, draining funds from the account swiftly without the victim's immediate knowledge.
Fake invoices are also a frequent tool in ACH fraud. Here, businesses receive invoice requests for products or services that were never ordered or delivered. Unsuspecting employees might pay these invoices without verifying the details, leading to financial losses.
Another common method is phishing scams, where fraudsters send emails or messages that appear to be from a legitimate source. These messages typically encourage recipients to provide sensitive information like bank account details, which are then used for fraudulent transactions.
Learn more about phishing and spoofing crimes.
There are several fraud prevention best practices small businesses can put in place to help reduce the risks of a fraudulent ACH transfer. These include:
Nobody wants to be the victim of financial fraud. Take these measures to protect your business against ACH payment scams:
Despite the potential vulnerabilities, conducting ACH transactions is a commonplace practice for businesses — payroll processing, vendor payments, and customer refunds are just some of the occasions when ACH transactions may be necessary. To reduce vulnerabilities in your ACH transactions, consider these tips:
So, what should your employee training program focus on? Here are some key training topics:
Implementing stringent internal controls is also essential for mitigating the risks associated with ACH fraud. Strengthen your small business’s defenses by taking these measures:
To properly implement these best practices, it is necessary to develop a system of fraud detection and response. This should include:
Fraudsters and their methods are not only constantly evolving and developing, but they’re also seeking new vulnerabilities to exploit. To avoid being caught off-guard, it is essential to remain vigilant and informed about the latest fraud schemes and tactics. Regularly engaging with industry resources and news can provide new insights into emerging threats and recommended protective measures. By staying attuned to these developments, you can adapt your business’s defense strategies in real-time.
Beyond keeping up to date, it’s vital for small business owners to understand the potential impact of ACH fraud and the importance of effective prevention strategies. When it comes to fraud, it’s always better to be proactive rather than reactive. Fraudsters are becoming more sophisticated, and fraud represents one of the greatest ongoing threats to any small business. According to a 2023 Experian report, nearly 70% of businesses report that fraud losses have increased in recent years and over half of consumers feel they’re more of a fraud target than a year ago.3
By prioritizing ACH payment security, businesses can safeguard themselves more effectively, maintaining the trust of customers, suppliers, and partners. Stay one step ahead with the help of PayPal’s fraud detection technology.
In partnership with three expert business owners, the PayPal Bootcamp includes practical checklists and a short video loaded with tips to help take your business to the next level.
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