Virtual Business Scam Alert: Learn from our Mistakes


Having worked exclusively online for the past 7 years, I have had my fair share of setbacks and scams. Little petty assignments where the customer doesn’t pay or decides after the work is done they aren’t paying the whole bill. As you are probably aware there is little a freelancer can do when they go unpaid. Oftentimes the cost of defending themselves is much more than the original amount. It’s no wonder to me that many of our peers require upfront payment.

However, sometimes you can do everything in the world to protect yourself and you still get scammed.

It’s unfortunate because as the world is getting smaller, I want to work with clients overseas. I love the idea that a person from anywhere in the world can bring a valuable product or service to the marketplace. But, there is a very odd catch-22 in the merchant services world that makes working with people or companies from overseas beyond difficult.

Here’s the background of what happened to us this past February:

We found a client on a job board that wanted mounds of content. It started slow with a press release, then some music reviews. This client was hard to nail down, he kept having me chat with his admin. He claimed that he was an Australian but was in the midst of a lot of travel.

Things became a little shady when he wasn’t responding to our invoice or credit card authorization. However, he did ask for more work and supplied a credit card number the next time I caught him.  He jumped offline immediately (to a meeting?) after supplying the card and it was denied.

Just as a sidenote, there is a constant loving struggle between my business partner and myself. I am always in the corner of the customer and she is always in the company’s corner. I want to overdeliver, she wants to get our due. At this point I am constantly reminding her to give this client the benefit of the doubt. It just doesn’t sound logical that he is scamming us. It sounds more like a guy who is just insanely busy, green behind the ears, etc. We’ve dealt with these types before. Let it ride.

And so we did. We let it ride, for another week or so. Finally I nailed the guy down on Skype for about 30 minutes where he provided me more credit card info, and now with a MA address. The cards kept getting the “Do Not Honor” code which in my merchant account manual does not indicate fraud, but rather a lack of approval. During our chat he provided 3 different card numbers until one was approved. We charged it twice for a total of $2,500.

The charges went through, we finished our content, life was good.

Then about two weeks later we get a notification of a chargeback. That $2,500 was missing from our bank account and we got a nasty letter from our merchant account about our chargeback percentage. We had just recently switched merchant accounts so $2,500 was a hefty amount to have marked as a fraudulent chargeback in our first month.

So at this point we have lost $2,500 already paid out to our staff for the writing, we have our merchant account threatening a hold on our account and we are just days away from payday with very little funds. This is a very sad day!

We know that we are in the right, so we try to see what the next practical steps would be.

My business partner walks down to the bank to see what our bank rep has to say. They spend a lot of time chatting up everybody from the credit card company to the merchant account and anybody else they could talk to. At the end of this day all we know is that the credit card company will send us a letter and we will have a few weeks to respond to it.

Roughly a week later we receive the letter and by now we have our evidence. All the countless emails, online interaction, the invoice and more to defend our position to the credit card company. We were confident that we would get our money back.

We didn’t – here’s why: The insane Catch-22 all small businesses should know!

Evidently our merchant account (household name, not a lesser known merchant) does not track AVS information for charges made outside the US and Canada. This means even though I put the MA address in when making the charge they didn’t track it. The reason they didn’t track the AVS code is that the card was issued by an Asian Based bank.

Let’s review: I put in a card with an address for MA and the AVS (address verification service) does not get flagged because the card is actually from Asia. I am not notified of this and in fact I get no error or flag message when the card is charged, just that it is approved. I have no idea the card is from Asia.

Now we have the kicker: the merchant and credit card company require the AVS in order to prove our case. Without this verification (which they do not track) we are without a legal leg to stand on against this fraud chargeback.

Obviously after we were accused of fraud this client stopped taking our emails. In fact, he even blocked me from his Skype contacts. And the admin we were talking to on Google Talk has disappeared as well. We talk to a few collections attorneys and get nowhere. Then I follow up with a corporate attorney here in Lexington and he tells me that if I can verify that the MA address is valid we can go down the road of collections via the courts.

I’m guessing I don’t have to tell you that the MA address was bogus right?

So what have we learned today? Unless you sell products that are worth pursuing people over international boundaries it isn’t worth the risk for selling to people overseas. And to be incredibly honest – that’s just crappy!

We’re in the process of changing our billing protocols in order to better protect ourselves. But the fact remains there is really no way for smaller companies to completely protect themselves from overseas companies or people. And that pains me to no end because I network often with overseas companies and I hate the idea of cutting ourselves off from those opportunities.

And for those of you interested, we Copyscape our stolen content on a weekly basis and as of yet it hasn’t been found anywhere else online but the original site we wrote the content for. That site is not valuable at all and makes no money as far as we can tell.

So it seems that whoever it is that scammed us out of $2,500 did it for no reason whatsoever. The prevailing theory is that he just wanted to test out an idea and happened to know about this loophole. Then when things didn’t work out the way he had hoped he just claimed the charge fraud and left it.

How do you protect your company from overseas sales? Or do you reject overseas companies from purchasing your product or service?

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Amie Marse is the founder of Content Equals Money. She lives in Lexington, KY with her two dogs: Billie and Lily. She has been writing content for her web based clients since 2005. She launched Content Equals Money in Oct of 2010, home of conversion focused content writing services. She loves to chat about small business development and how to make content equal money!

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Comments

  1. Amie! That is SO terrible that happened to you guys! Bad lesson learned but sounds like you are putting systems in place to prevent that from happening again. Hope all else besides that is well.
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