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Liens and Fraud, Oh My!—How to Protect Your Business from Financial Loss

February 18, 2020

What it comes to liens and fraud, what you don’t know can really hurt your business. Attorney Jeff King, who has spent 40 years litigating complex lawsuits with a focus on contracts, construction, and employment, offers some sage advice on how to get what your business is owed, and protect it from financial loss.

Mechanics Liens
While mechanics liens give contractors a powerful tool to get paid, not knowing the details that your state requires when it comes to filing a lien can mean the difference between getting paid and getting stiffed.

Being familiar with your state’s filing requirements and taking care when filling in the details on the lien paperwork are the very best ways contractors can ensure they will be able to successfully use a mechanics lien, said King, who spoke at a TISE 2020 education session.

For instance, something as simple as writing down the wrong address for the general contractor when filling out the form can render a lien invalid, King says. His tips:

  • Put in your original contract that you can file a mechanics lien. It lets your customers know right off the bat that you have a remedy for collecting monies due you in case they default on payment.
  • Ensure you can file a lien in the particular instance.
  • Make sure you notify the proper parties.Review your pre-notice requirements.
  • Check your deadlines to file.
  • Don’t let your lien expire.

Another way contractors can lose money is through credit card fraud. Chip cards are more secure than swipe cards, since the chip creates a unique transaction code every time it is used, unlike the older swipe cards, where the card’s magnetic strip holds unchanging data.

But a vendor can render that technology useless by allowing a customer to swipe a chip card if there’s a problem processing the chip. In that scenario, the vendor becomes responsible for any fraud associated with the transaction. However, if there is fraud involving a swiped card, the issuing bank, not the vendor, is responsible. So if the chip card reader is wonky, it’s in the vendor’s best interest to fix it or replace it.

If a business wants to offer the convenience of creditcard sales over the phone to its customers, the company needs to be aware of the rules the issuing institutions have governing the use of the cards, and ensure that its sales force knows and follows the rules as well, King says. Otherwise, the business may find itself eating an unnecessary loss.

ACH fraud—the unauthorized transfer of funds in a bank account—is unfortunately easy to accomplish. All a criminal needs to access a bank account is the account number and routing number. Both are printed on a check.

While individuals have up to 60 days to report fraud, King says business operators only have 24 hours. To safeguard their companies’ financial wellbeing, he says it’s best practice for business owners to check their financial accounts every day. That way, dicey transactions have a better chance of being noticed right away.

King suggests that it’s best if businesses minimize their use of checks, since credit cards offer much more protection in case of fraud. To further protect themselves from fraud, business owners can add insurance coverage for bank fraud loss.

If your business does ACH transactions, King suggests employing an ACH block to protect against fraudulent transfers. With a block, bank transfers are automatically held until the account holder authorizes the transaction.

Business owners also can work with their banks to set up rules to protect their accounts against possible fraud. One way is to provide your bank with a list of users authorized to make these transactions. Another is to set a limit on the amount of an ACH transaction. Any transaction over a set amount will be flagged by the bank and brought to the account holder’s attention. In addition, a business can specify a specific number of transactions a month that are permissible, with anything over that number flagged and reported.

Before anything untoward ever happens, King advises business owners to make sure they know their financial institution’s policy for reporting fraud. If a company does become a victim of fraud, he says they should report it to their financial institutional immediately, and consider contacting the company that receives the fraudulent funds. He also suggests reporting the fraud to the appropriate law enforcement.

Even if a company misses its bank’s reporting deadline, King counsels contacting the bank anyway, and working with it to mitigate the financial damage.

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