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Thursday
Jan272005

Prevent New Credit Card Scam

You, like all business people, balance the needs of your clients or customers with the need of your business to receive payment for goods and services delivered. Desperate customers have discovered a new credit card scam.

This last Christmas season, an Oregon business owner thought he was doing just that. A retail store with a large accounts receivable balance with this supplier wanted to order inventory for the retailer's Christmas season sales. The supplier required payment in advance by credit card before specially ordering the products requested. The credit card transaction was approved and the goods were shipped.

After the goods had been delivered to the retailer, the account holder that authorized the credit card charges by telephone informed the credit card company that the charges were made without authorization and accused the supplier of fraud. The cardholder lied to obtain product for the Christmas season without paying.

Financially troubled business people do desperate things to try to keep their businesses afloat. People who otherwise consider themselves to be honest and law abiding will lie, cheat and steal to stay in business.

The supplier, to protect their ability to receive credit card payments from others, had to refund the amount charged on the credit card. It can be very hard to refund money when you do not know if you will ever get it back.

The supplier had a number of remedies available for payment. The most aggressive remedy would have been to threaten to join with two other creditors and file an involuntary bankruptcy petition and obtain the appointment of a trustee to take over the retailer's business.

Such threats can often get a debtor's attention and move you to the head of their payment priority list. In the appropriate situation, you may want to go ahead and file the involuntary bankruptcy. This is an action that must be reviewed carefully with experienced counsel in advance. A bad faith filing can lead to costly sanctions against the creditor. In the right situations, it can be a way to prevent further bad business decisions or outright fraud and recover at least a portion of what you are owed.

If you are a long time reader of LegalBriefs then you know I like to point out ways to avoid problems. In this instance, if the supplier had a written credit card authorization signed by the credit card holder authorizing the amount to be charged, the retailer cold have avoided all of these problems. The supplier then would have had their money up front, the matter would not have taken up the time and attention of the owner, they would not have incurred attorney fees and other collection expenses and they would not have been the subject of this week's LegalBriefs.

There are several lessons to be learned.

DON'T: Don't trust clients or customers that don't pay you as agreed. They have already lied to you once. They told you they would pay you and they have not. In too many instances, past due debtors will say anything to buy more time.

DON'T: Don't rely on the handshake, verbal promise or even email of someone that owes you money. Get it in writing and get a signature.

DO: Do use written authorizations for credit card charges. You can prepare a standard form, fax the form to your clients or customers and have them fax back to you before you deliver the goods or services requested. If you accept transactions over the Internet, the possibility of credit card charge reversals are a cost of doing business. For everyone else, particularly when dealing with clients or customers that do not pay as agreed, get a signed written authorization form.

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