Small Business Fraud Prevention: 3 Common Fraud Trends and Red Flags To Watch Out for
It starts with a phone call that feels urgent but sounds reassuring. Imagine you’re wrapping up a busy day when someone claiming to be from our team at Bank Midwest rings. Your caller ID even flashes our name. They warn that several suspicious ACH transfers are queued on your business account and politely offer to “help” by joining your online banking session. Sensing a crisis, you grant access — only to realize too late that you’ve let a fraudster in. In minutes, they schedule $170,000 in bogus payments before our real fraud team steps in, boots them off and recovers most of the funds.
Although this story has a relatively happy ending, it underscores a troubling reality: scams like these unfold across the country every single day. Cybercriminals know small businesses often juggle countless tasks with limited staff, making them prime targets. Their tactics grow more convincing by the minute, blending sophisticated technology with high-pressure social engineering.
Staying vigilant is essential for protecting your hard-earned revenue, reputation and customers’ trust. This blog dives into three trending scams to keep an eye on, and how to respond if your small business is hit with one of them.
Recognizing the 3 Common Small Business Fraud Trends and Their Red Flags
Fraudsters go where they see opportunity, and small businesses often provide just the right mix of money movement, lean staffing and time pressure. A single successful scam can drain cash reserves, stall growth plans, and damage relationships with vendors or customers. Understanding how the three most common schemes work — and spotting their warning signs early — gives you a head start in shutting criminals out.
1. Bank Impersonation Scams: Urgent requests for sensitive information or account access.
What It Looks Like:
- Spoofed phone numbers, emails or text alerts that appear to come from your bank.
- Claims of “unusual activity” or “pending transactions” that need immediate attention.
- A friendly “representative” who urges you to log in, share a security code or start a remote session.
Red Flags To Watch for
- Pressure to act before you “lose funds” or “face account suspension.”
- Requests for online banking credentials, one-time passcodes or screen-sharing access.
- Calls or messages that arrive out of the blue, especially outside normal business hours.
Prevention Tip
If any unexpected bank contact asks for sensitive details, politely end the conversation and dial the trusted phone number on your statement or bank website. Verifying on your terms keeps crooks at arm’s length.
2. Check Fraud: Unusual amounts or unfamiliar payees.
How It Happens
Criminals steal outgoing checks from mailboxes, wash the ink, and rewrite them to new payees—or alter the amounts altogether. They can also create counterfeit checks bearing your routing and account numbers.
Red Flags To Watch for
- Checks clearing in amounts that don’t match your ledger.
- Duplicate check numbers appearing in your statement.
- Vendors contacting you about unpaid invoices, even though funds already left your account.
Prevention Tip
Use secure drop boxes inside the post office or switch to online payments when possible. For paper checks you can’t avoid, enable Positive Pay, a Bank Midwest tool, so the bank matches each presented check against your issued file before releasing funds.
3. Business Email Compromise: Sudden changes in payment instructions or urgent financial requests.
What It Looks Like
Hackers gain access to — or convincingly spoof — a trusted email account. They then direct staff to reroute payments to a new bank account or to process an urgent wire transfer.
- Requests to update payment details without prior discussion.
- Messages stressing confidentiality or requiring immediate action.
- Sender addresses that look almost right but include subtle misspellings or extra characters.
Prevention Tip
Always verify changes in payment instructions with a phone call to a known contact number, not the one provided in the email. Train employees to slow down, double-check sender details and escalate anything suspicious.
With these red flags in mind, your team can stop most schemes before money leaves the account. Reinforcing your defenses by securing the very systems fraudsters try to exploit is the next step.
Protecting Your Data: Tips to Secure Your Network
Fraud schemes often succeed because criminals exploit weak spots in your technology. By shoring up those gaps now, you reduce the odds that scammers ever get close to your money or your customers’ information.
Secure Your Devices and Networks
Even basic security measures make life much harder for cybercriminals. Start with these essentials to keep prying eyes out:
- Keep operating systems, antivirus tools and firewalls updated so the latest security patches are always in place.
- Require multi-factor authentication (MFA) for online banking, email and any cloud applications that handle sensitive data.
- Configure Wi-Fi networks with strong encryption (WPA3, if available) and hide your network’s SSID to deter casual snooping.
- Segment guest and employee Wi-Fi so visitors can’t hop onto the same network you use for business operations.
- Limit administrative privileges; only give elevated access to team members who truly need it.
Back Up and Encrypt Your Data
Data loss can sneak up on you through cyberattacks, hardware failures or simple human error. A smart backup strategy ensures you’re never starting from scratch:
- Automate daily, encrypted backups to an off-site or cloud location.
- Follow the 3-2-1 rule. Keep three copies of your data, on two different media types, with one copy stored off-site.
- Periodically test your backups by restoring sample files — better to uncover issues now than during a crisis.
- Encrypt sensitive files at rest and in transit so stolen data is useless without the decryption key.
Use Strong Passwords and Policies
Passwords remain a top target for attackers, so make them count:
- Require complex passphrases that are at least 12 characters long and mix letters, numbers and symbols.
- Prohibit reused or shared passwords across multiple systems.
- Enforce business-wide password changes every 90 days and disable accounts that go dormant.
- Provide a password manager to make compliance painless and reduce the temptation to write credentials on sticky notes.
- Educate employees on spotting phishing emails that trick them into revealing their login details.
Responding to Suspected Fraud: What to Do Next
Fraud moves fast, so your response must be swift but structured. An orderly plan minimizes losses, preserves evidence and positions your business for a smooth recovery. Here are the steps to follow when you suspect fraud:
Step 1: Stay Calm and Document Everything
When an irregular transaction or suspicious email pops up, resist the urge to panic. Instead, pause and document every detail. Note the time you noticed the issue, capture screenshots of questionable activity and preserve any emails, caller IDs or chat logs. Clear, time-stamped records give investigators a head start and strengthen any insurance or legal claims that may follow.
Step 2: Secure Systems and Limit Access
Next, keep additional damage from spreading. Lock down online banking access, disable compromised user accounts and change passwords across critical platforms. If malware is suspected, disconnect affected devices from the network to stop data from flowing out. Limit system privileges to essential personnel only until you understand the scope of the breach.
Step 3: Report and Investigate
Finally, bring in reinforcements. Contact your financial institution’s fraud department right away — they can freeze transactions, trace funds and advise on next steps. File a report with law enforcement or your regional FBI field office if cybercrime is involved. Consider engaging a cybersecurity firm to perform a forensic review so you understand exactly how the breach occurred and can shore up any remaining weaknesses.
Empowering Your Business with Trusted Fraud Prevention Solutions
Protecting your business from fraud requires ongoing collaboration with your financial institution to take advantage of advanced security options tailored to your needs. By working closely with Bank Midwest, you can access tools that significantly reduce risk—including for check and ACH transaction verification, setting up account alerts or using dual control features within Cash Management.
Protecting your business from fraud requires a proactive partnership with your financial institution. By working with Bank Midwest, you gain access to advanced security tools tailored to your needs—such as Positive Pay for check and ACH transaction verification, customizable account alerts, and dual control features through Cash Management.
For example, Positive Pay, enables you to upload a list of authorized checks or ACH recipients. Each payment is then matched to your records, and any discrepancies—such as the wrong amount, check number, or payee—are flagged for your review before funds are released. This extra layer of validation helps prevent losses from altered or counterfeit checks.
Cash Management dual control adds another safeguard by requiring multiple employee approvals for outgoing wires and ACH transactions, strengthening oversight before funds move out. Leveraging these protective measures with your financial institution helps prevent unauthorized activity and keeps your accounts secure amid evolving fraud threats.
For added peace of mind, consider cyber liability insurance. This coverage can help offset costs if a cyberattack disrupts your business—supporting expenses like data recovery, regulatory notifications, and potential third-party claims. It’s an important option for financial recovery should a breach occur.
Safeguarding your business takes strategy, vigilance and the right allies. Reach out to us at Bank Midwest to open secure accounts and tap into our team’s expertise in cybersecurity, fraud prevention tools like Positive Pay and tailored insurance solutions. Together, we’ll help keep your business and your peace of mind secure.