Recent research has revealed the alarming extent of payment fraud in the UK, costing SMEs an eye-watering £22billion every year.
Of the 1,124 businesses surveyed, a remarkable 40 percent admitted they had been left out of pocket by an act of fraud in the past year, costing each an average of £4,515.
With such a large sample size, it’s fair to assume that this loss was replicated by the estimated 4.9 million SMEs in operation across the UK, resulting in a total shortfall of £22billion as a result of fraudulent activity.
The extent of the losses
These figures show the worrying trend in the UK of spiralling fraud which small businesses are not doing enough to combat. Of the survey’s respondents, 17 percent of businesses have been defrauded of between £1 and £1,000 in the past year; 10 percent are down by up to £5,000; 4 percent have lost between £5,001 and £10,000; and an unfortunate 3 percent have fallen foul of the fraudsters by more than £10,000. But is it plain bad luck, or are some SMEs doing more to protect themselves than others?
The lack of fraud prevention measures
Despite the losses made by SMEs every year, 39 percent are still not spending a penny on fraud prevention measures. Perhaps more worrying is the fact that 21 percent of businesses were unsure whether they had any fraud prevention schemes in place.
Company checks can protect SMEs against fraud
In many cases, it is the perceived expenses that make businesses reluctant to consider the antifraud measures open to them, but this is not always the case. One option offered by companies such as RMonline allows SMEs to conduct a number of company checks which can reduce the risk of fraud. The ability to check the payment history of potential debtors is an effective method of developing a clearer picture about a company before you agree to do business with them. The telltale signs that everything’s not quite as it should be include County Court Judgements (CCJs) and multiple insolvencies within a relatively short space of time.
Fraud: an inside job
One troubling factor for businesses of any size is the likelihood of a fraudulent act being committed by an employee of the organisation. Typically, fraud is both committed and uncovered by individuals within the company. A survey commissioned by The Economist revealed some troubling statistics.
Overall, 72 percent of the survey’s respondents admitted that their business had been the target of at least instance of insider fraud during the year. This rose from 67 percent the year before. However, despite the increasing proliferation of insider fraud, only 43 percent of the respondents intended to increase their investment in this area over the coming year.
The rise of information fraud
Another common area of fraud amongst SMEs is information related fraud, which currently affects just over one in five businesses every year. Meanwhile, three-quarters of businesses believe their business to be at least moderately vulnerable to such acts. Despite acknowledging and recognising the threat, many SMEs are still failing to act to protect their business. But why?
Informational fraud is commonly the result of complex I.T structures; a threat which is complicated to diminish without exerting a degree of control which might limit an SMEs operational agility, responsiveness and ultimately, competitive edge. Despite the rise in I.T. related fraud, only 68 percent of businesses have made any investment in computer security. This means that a third of SMEs are operating without any security at all!
Exercising too much control can be bad for business
SMEs should act pragmatically in their fight against fraud and not become victims of paranoia. Eradicating fraud completely can not only be hugely expensive and time consuming; it is also likely to damage the business in question. If controls are too tight, SMEs can lose their competitive edge amongst reels of red tape. So, while remaining vigilant and identifying potential areas of risk is essential, be aware that every extra step you ask a customer to make or process an employee must follow is an additional cost to your SME.
Has your business fallen foul of fraud? What measures have you implemented to help reduce the risks? We’d love to hear from you.