Financial Self Defense – Business Directory Scam
Every business owner knows there’s no such thing as bad publicity, especially when it’s free. Newspaper articles, a business directory 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 businesses directories are on the rise. These schemes come in a variety of flavors.
Variations of the Business Directory Scam
One variant has the scammer call, fax, or e-mail asking the business to “confirm” or “verify” its contact information for a business directory. No discussion about price occurs. The scammer targets office professionals, receptionists, and personal assistants who they bully into saying yes. In the case of a fax or e-mail, the terms and conditions on the statement may include a 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 “urgent” invoices for a few hundred dollars to thousands. Many scammers are counting on a low-oversight accounts payable system that posts and pays invoices without much investigation. If the invoice is not paid, the scammer will escalate to collection notices and calls and may threaten the business’ 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 that takes advantage of the contrast effect. Paying $500 when you’ve previously been told you’ll have to pay $1,000 seems much more reasonable than just being told to pay $500.
Other variants may claim to confirm Yellow Pages directory 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.
Scam Origins
Authorities suspect the scams originate in a small number of large call centers located outside the US. Recently, the FTC filed suit against a Montreal-based call center that had defrauded thousands of businesses and charities in the US. Despite these charges, the business directory scam continues to grow in popularity.
If a scammer targets your business or charity, there are a few things you need to know. To keep your business out of trouble, make sure you do the following:
1) 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. Write it down and tell your employees about it. This language will protect them should they be the ones to sign one of these fake directory 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!
2) Don’t pay them a dime
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 made agreements 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.
3) Inspect, collect, and notify
If you haven’t before, now’s a good time to take a look at your accounts payable processes. Enact tight controls to ensure that you pay only legitimate invoices. 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 with 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 Federal Trade Commission (FTC) immediately. Misrepresentations like these over the phone, fax, or e-mail are a violation of FTC rules regarding advertisement. The FTC can be reached at 877-FTC-HELP or online at ftc.gov/complaint.
4) 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. Contact local organizations and charities that represent your business values. Don’t sit back and wait for those opportunities to call you up. Get out and take charge of them yourself!
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Sources:
http://www.businessknowhow.com/security/directoryscam.htm
https://www.ftc.gov/tips-advice/business-center/guidance/small-business-scams