Americans are losing more money to scams than ever before. According to the Federal Trade Commission, consumers alone lost $12.5 billion to fraud in 2024 – that’s a 25% increase from the prior year.
And it’s not just consumers; business leaders all over the nation must ensure the vendors and partners they work with are legitimate, too. Without proper checks and balances in place, fake businesses can take advantage of legitimate businesses and defraud “customers.”
Whether you’re looking to make big purchases online or coordinate business transactions, you need to know if the company on the other side of the deal is a legitimate company.
Although there isn’t a standard test to check if a company is real, there are a few tips and tricks that can help you – or your business – stay out of harm’s way. Together, we can help reverse the skyrocketing fraud statistics that we see today.
On the surface, the idea of fake businesses can feel…well…fake, but, unfortunately, fraudulent businesses are created every day. Some of the most common scams carried out by fake businesses can be quite lucrative, preying on hard working families, financial institutions, and even other businesses.
Let’s take a look at a few consumer-oriented scams:
Of the $12.5 billion that consumers lost to fraud last year, $5.7 billion was from investment scams. By creating fake companies that offer investment advice and “guarantee” returns on certain investments, these scams can result in financial ruin for individuals.
Online shopping is incredibly popular and convenient for buyers who want to make a purchase, but it’s also popular and convenient for bad actors. By luring customers to fake websites, scammers can collect data, login information, or even payments from unsuspecting customers.
With layoffs on the rise, job seekers are desperate to find jobs and get hired. This desperation is exploited by fake companies that convince job seekers to send payments or personal information as part of the hiring process.
On the business side of things, some of the most common scams made by fake companies are:
Chances are, you’ve seen a phishing attempt first-hand in your business. In these attacks, hackers send an email that looks legitimate – often seeming to come from a vendor, customer, or organizational superior – instructing the recipient to click a link and enter information. Once the recipient clicks the link, they could unknowingly download malware or be asked to verify their login credentials, opening the organization up to a whole host of risks.
Posing as company leadership or another important stakeholder, hackers can convince company employees to send funds or carry out tasks that are fraudulent. Social engineering scams have gotten harder to detect due to the rise in artificial intelligence and deepfake technology.
Just last year, an employee at a multinational finance firm sent $25 million in fraudulent payments after attending a video call in which company leadership instructed him to do so. Unfortunately, the people on his screen weren’t actually members of the leadership team at all – they were carefully crafted deepfakes that looked and sounded just like them.
Most businesses have a routine approach to processing invoices, but sometimes, the most mundane tasks are ripe for fraud. If a scammer can get more than $100 million in fraudulent vendor payments from companies like Google and Facebook – which both have extreme security measures in place – then your business is at risk, too.
Before working with a new vendor or spending any money with a company you’re unfamiliar with, conduct your own due diligence to check the company’s legitimacy. These approaches are free and easy, and can often be done in just a few minutes.
If you have even an inkling of doubt regarding a company’s legitimacy, look up the company online. If it’s a legitimate entity, it should have a website that is professional, thorough, and easy to find.
Comb through the “About Us” section and other pages to assess the care that went into grammar and spelling accuracy. A fake web business may still have a website, but often, there will be clear spelling errors or lazy messaging on the website.
Finally, search the website for contact information. It shouldn’t be too difficult to find a phone number, the company’s address, and business email on the company website. You can look up the address in Google Maps to verify that it’s a real address that makes sense for a business of that sort.
Nowadays, online reviews are heavily utilized in every industry. Although the review website or platform used may vary, start with common sites like G2, TrustPilot, or Google Reviews. It’s a simple search to look for the company in question, and you can see what past customers had to say.
It’s a good sign if the company comes up on review platforms at all, but keep in mind that it is not a guarantee of company legitimacy. Sometimes, fake businesses will cheat the review system, using bots or fake customers to leave positive reviews.
This shouldn’t be your only form of verification if you’re trying to understand if a company is legit, but it’s a good tool to have at your disposal. If they are legit, getting an idea of both positive reviews and negative reviews can be very helpful when deciding whether or not to partner with a particular company.
If you see a number on a company’s website or online somewhere, don’t be afraid to call that number. Does the number even work? Is it answered professionally with company branding? You’ll be able to tell a lot just by how the first 30 seconds of the call go.
Many fake businesses are lazy when it comes to phone numbers; true phone lines can cost money to set up and maintain, and hackers might try to avoid the cost and hassle associated with it. But real businesses won’t.
In some cases, there are fake businesses that can use free Voice Over Internet Protocol (VOIP) phone lines. When you call, you might get an answer, but if you start to ask questions about the business, it’ll become clear whether or not someone who truly knows their stuff is on the other side of the call.
If you’ve called, scoured the web, and looked through online reviews and still aren’t feeling quite right, there are plenty of additional resources you can tap into. Let’s take a look at your next steps:
Running a credit check on a business can help determine if it’s a legitimate company. This method of verification will come with a small fee, but the peace of mind and fraud avoidance is always worth it.
When you run a credit check through one of the big credit reporting entities like Equifax, Experian, or TransUnion, you’ll get access to a lot of company information, including:
· The company name, physical address, and shareholder info.
· The names of director(s) of the company. This allows you to search individual names on LinkedIn or other professional sites.
· The company’s credit score.
Credit checks are great to see if a company is legitimate, but they’re also helpful in determining which vendors are safe business partners. If an organization has a low credit score, it means they don’t pay their debts back on-time and could be a liability to partner with as a vendor.
If you’re questioning whether a business is fake or not, the Better Business Bureau will help you get the answers you need. By providing business profiles, reviews, and a history of customer complaints, the BBB helps protect businesses and individuals from common scams.
In the last few years, the BBB has developed a scam tracker, where you can not only report scams that you come across but also see scams reported by others. Knowledge is power, and in this case, knowledge can protect the financial health of your business.
In the U.S. businesses are required to register with the Secretary of State’s office in which they do business. Some states even require businesses to register with local or regional entities, too.
When a business is legally registered with the Secretary of State where it does business, it’s easy for consumers or business partners to look up information about that business. You’ll find its registration status, the legal name, and the date when it was formed.
After you’ve done all the due diligence you can, it’s time to make a decision: is the company legitimate or not? If you conclude that it’s a fake business, don’t stand by and let the organization take advantage of others.
You can report scams to the Better Business Bureau, the office of the Secretary of State, and even the Federal Trade Commission (FTC). By reporting fake businesses to the proper entities, you aren’t just protecting your best interest – you’re also protecting thousands of other Americans who could be the next victim.
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