How to Avoid Online Scams and Why Verification Matters

As reports of scams on some trading sites continue to grow, it is natural to be concerned about credibility. Mounting complaints have become so widespread in the case of Alibaba, that its CEO and COO resigned a few years ago, due to a “systemic breakdown in [the] company’s culture of integrity.” Based on the results of an internal investigation, it was revealed that nearly 2500 Gold Level Alibaba suppliers had scam complaints filed against them. If that wasn’t enough, becoming a free member of the site requires no verification at all. That’s right… zero.

What can you do to protect yourself? Here are a few important tips:

WORK WITH COMPANIES YOU CAN TRUST

This rule of thumb is a throwback to conventional wisdom from the time before internet trading existed. Twenty years ago, would you have bought or sold goods with a complete stranger with no references or business verification? Of course not! So why do it just because they have an online profile? Now you might be wondering, “how do I expand my business if I only trade with companies I already know?” Worry not, dear reader. The answer to your question is covered in the next few tips.

INSIST ON VETTING

At go4WorldBusiness, vetting is the process by which a member’s business details are carefully reviewed for red flags. They review references and check for things like multiple business addresses, lack of tax ID information, etc… the types of details that would signal a scammer-at-work. If a membership application shows any signs of being less-than-credible, that membership is denied, period. Go4WorldBusiness has even been accused of being too strict, but since safety and security are our top priority, we take this step extremely seriously, and so should you.

WHEN IN DOUBT

Vetting provides peace of mind, but you should always, always perform your own due diligence before entering into a business deal with anyone. There are a few suspicious behaviors to watch out for, and they are easy to spot if you’re on the lookout.

Be wary of these suspicious behaviors:

• Emails from a personal account (e.g., gmail, Hotmail, etc) rather than a company account
• Frequent emails from more than one address
• A change in payment terms
• Request for payment to personal account, via Western Union or bank wire transfer
• Prices that seem too good to be true
• High pressure tactics, a sense of urgency
• Offers to evade certain taxes or customs (if they’re willing to fraud an entire government, what’s to stop them from lying to you?)
• Requests to pay additional customs clearance fees on goods exported from China (such fees do not exist)

In short, stay vigilant and if something feels less-than-professional, it probably is. Cut your losses and move on.

TEST THE WATERS

Although buying in smaller quantities can be tedious and more expensive, it is worth trying out a supplier before committing to a large order. The generally accepted recommendation is to gradually increase orders over time, while continuing to verify quality. That is because it’s relatively easy to send one sample that is not representative of the whole supply. So in the early stages of developing the partnership, you should order small and check often.

GO BY THE BOOK

A tried and true way to protect yourself, especially when working with a new contact, is by employing a third party to ensure that both sides of the transaction uphold their responsibilities under the agreed upon terms. For instance, a letter of credit (LC), sometimes known as a documentary credit, is a bank-issued certification that a buyer has the funds available to complete a given transaction. There are several different types of LCs, but the most secure one, a “confirmed and irrevocable” letter of credit guarantees that the seller will receive payment once they have delivered the goods (because if for any reason the buyer cannot complete payment, either the buyer’s issuing bank, or the seller’s confirming bank will pick up the tab). Having an LC adds an obvious layer of security for the seller, but what about the buyer? It protects them as well, because the bank(s) will demand that certain requirements with the delivery are met before being able to issue payment. But that layer of security isn’t cheap: banks charge buyers between .75% and 1.5% of the sale price, and sellers could end up paying $150-$300 or more to their bank, depending on how much servicing is required. For traders on a budget, escrow services cost less but work in a similar way, in that they verify and hold the buyer’s money in an escrow account and release payment only after the delivery has been made. However, if you decide to go this route, make sure that your escrow services provider is from an established and trustworthy company… otherwise, you run the risk of them running off with the cash, leaving both you and your trading partner high and dry.

By following these tips, you can protect yourself against the most common international trade scams. It’s never too early or too late to start following these best practices – while you might not have been burned yet, if you’re engaging in risky trading behavior, chances are… you will. Make today the day you start trading safer and smarter: become a verified supplier or find verified suppliers or find verified buyers.