Control and monitor your spending with company credit cards

Credit cards have a reputation for helping businesses establish and build credit, but they’ve recently evolved into a much more powerful tool because of the benefits that can be derived from their role in money management.

Purchasing has been made more convenient with credit cards, especially with the increase in online spending, something that is difficult or impossible to do with cash or check. They’re also being used more as a way for businesses to better control accounts payable, synthesizing payments through one statement instead of having multiple bills with different due dates from many vendors.

Rewards programs that offer perks for purchases that companies will make regardless of the method of payment has added another dimension to the usefulness of credit cards.

Smart Business spoke with Deborah Julian, senior vice president and regional manager at U.S. Bank, to learn more about the evolution of credit cards as a purchasing medium for businesses.

Why use a credit card to manage cash?

Credit cards are a preferred, secure method of payment for many vendors, and they represent a much more timely form of payment than a check or cash.

From a money management perspective, credit card statements offer great detail — categorizing purchases and tracking more closely where money was spent and by whom. This can go a long way to managing where funds are going within a company and to helping a company get a focused perspective on its spending habits.

What does a company credit card allow a company to do that it otherwise can’t?

Company credit cards allow a business to implement greater efficiencies and help improve time management. Companies using cards get very detailed purchase statements that can flow directly into accounting software applications, such as QuickBooks, and then translate easily, and often automatically, into quarterly or annual statements. Purchases made through other methods require more manual reporting methods to track spending.

Reward programs that offer cash or credits that help offset travel expenses can be earned from making purchases with credit cards. These programs are becoming a much more desirable feature of company credit cards.

How does a company qualify for a card?

It depends on size of the company, its ownership and the spending limit requested. Other factors considered are sales, time in business, and depending on type of business and how the ownership is structured, a credit card may be attached to someone’s personal credit in addition to the business’s credit.

What controls should be in place to head off any potential misuse?

Companies can specify how cards are used and by whom, and can also set card-specific purchasing limits.

It’s important that only authorized users are given access to a card. In years past, a company would get a card and make it available to anyone in the company who needed to make a purchase. A better way is to authorize individual spending by assigning cards to specific employees, then it can be known who made the purchases. It keeps things very tight. Typically, a company’s decision-maker sets that access as well as the spending limit.

Controls can be further implemented on spending habits by designating the type of merchant and locations at which money can be spent. For example, an organization that has drivers who needed credit cards for gas purchases can install controls that limit the type of merchant at which drivers can make purchases.

As a safeguard, there is daily, weekly and monthly reporting available that allows a business to manage its spending further. It’s a good idea to have two people looking at who is authorizing spending and reviewing card statements to stay on top of card usage.

Many businesses are unaware of all the benefits, safeguards and perks that can be made available to them through a company credit card. Spend time with your business banker to discuss your options. These conversations can help your banker understand your needs and find a solution that fits your situation.

Insights Banking & Finance is brought to you by U.S. Bank

How to attract and develop a skilled workforce for today’s labor market

With the economy gaining momentum, businesses are facing a different problem — developing a sustainable and skilled workforce.

“Generating over half a million job vacancies nationwide, the skills gap is responsible for a full percentage point of today’s unemployment rate. It’s causing delays in America’s resurgence, particularly in industries like manufacturing, health care and construction — the industries that make up the lifeblood of the Pittsburgh economy,” says Dave Schaich, president of Western Pennsylvania Middle Market at Chase Commercial Banking.

Applicants don’t have the skills for open positions, and the consequences are real. Labor shortages cause construction delays and hamper productivity for projects big and small.

Smart Business spoke with Schaich about accounting for labor — just as you would capital — when navigating potential risks of new business operations or expansions.

How did the skills gap emerge?

After decades of offshoring, manufacturing is experiencing a modest renaissance, but vocational education has deteriorated. Older workers who dominate the industry are preparing to retire, and the next generation isn’t ready to fill positions.

Add in the high-tech nature of advanced automation that dominates U.S. manufacturing and the skills mismatch intensifies. In fact, employers may find workers comfortable with computerized systems steer towards white-collar careers.

What has been the effect in Pittsburgh?

While parts of the U.S. are experiencing more severe labor shortages, Pittsburgh isn’t immune. According to the Allegheny Conference on Community Development, the area has nearly 30,000 open positions.

Western Pennsylvania’s resurgence is fueled by industries that heavily rely on skilled workers, such as the booming energy and petrochemical industry with its army of welders, pipefitters and drillers. More than 41,000 are employed in the core energy industry, generating over $19 billion in annual activity or 16 percent of the total regional economy. Further, Shell’s Monaca natural gas refinery is expected to require another 18,000 skilled construction workers.

High-tech manufacturing employs more than 96,000. In the past decade, advanced manufacturing added 23,000 new positions, and the industry appears to be accelerating, adding 5,000 workers in 2011. Plastic, glass and metal production depends on workers at ease in a highly automated environment.

Area businesses are finding it equally difficult to hire traditional white-collar workers, such as qualified management and sales personnel. They cite a lack of soft skills, affecting their ability to innovate, respond to market demands and operate efficiently.

How can businesses lessen labor shortages?

To maintain operations and mitigate effects on revenue, businesses should be exploring options to tackle the skills gap head on.

Seventeen Western Pennsylvania unions provide free apprenticeship training for new members. Combining classroom instruction with hands-on training, workers are prepared for skilled trades in ironworking, pipefitting, construction or boilermaking. Though aimed at developing a new generation, this isn’t an immediate solution — most programs require four to five years before apprentices can work independently.

Community colleges offer vocational programs geared towards filling specific industry needs. The Community College of Allegheny County, for example, has a one-year mechatronics program focused on precision machining and industrial maintenance, especially in working with high-tech equipment. It also has launched a one-year welding and pipefitting program for gas and oil field workers.

This year, the Department of Labor’s (DOL) Trade Adjustment Assistance Community College and Career Training program will award $450 million in grants to promote public-private vocational training partnerships. Thus, employers encourage workforce development by sponsoring apprenticeships and work-based learning.

Another DOL program, The American Apprenticeship Initiative, extends $100 million for apprenticeships in high-growth fields, including health care and advanced manufacturing. It rewards employers that integrate work-based training with instruction to cultivate a skilled workforce.

Insights Banking & Finance is brought to you by Chase

What your business can do to keep from becoming a victim of fraud

Every time another high-profile company like Target falls victim to fraud, both consumers and businesses scramble to ensure they have safeguards in place to keep it from happening to them.

It’s a tough battle to fight, of course, as criminals are always plotting to find a way around the latest security software and protocols to stay one step ahead of the authorities.

“There is always something new,” says Maha Banoub, AAP, CTP, vice president for treasury management services at Bridge Bank. “And that is why there is no bulletproof solution. It’s a combination of fraud protection programs and behavior to reduce the risk. ”

Smart Business spoke with Banoub about what you can do to protect your business.

What are the latest trends in fraud?

There is still the traditional check fraud, where a check that the company issued is stolen and washed for a different name and amount or the fraudsters create a check from the business account’s routing number.

There is the Automated Clearing House (ACH) debit fraud, where a fraudulent ACH collection is initiated against the business account or the account numbers are used to pay the criminal’s own bills.

Fraudsters can also hack email addresses, either personal or business, and send the bank instructions to wire funds from the company’s account to the fraudster’s account. This is known as masquerading.

What type of business is most susceptible to fraud?

It’s usually small or midsize businesses. Large businesses are protected by firewalls and usually have very good controls.

The main focus of smaller businesses is usually not fraud control, but rather growth, making them very open to hacking. For example, accounts may be reconciled only monthly rather than daily, and once fraud is detected, it will be too late to return unauthorized transactions.

What can you do to protect your business?

Companies should continually educate their employees on the latest trends in fraud. Use fraud prevention programs such as Positive Pay, where your bank reconciles checks with a list provided by the company, and ACH filtering, where you set rules on how ACH debits are approved by your bank.

Reconcile or at least review accounts on a daily basis and keep an eye out for anything that seems out of the ordinary.

Discuss security that is available with your bank on a regular basis such as segregation of duties and dual authorization on outgoing payments or administration functions.

Educate employees to never open unknown or unexpected email attachments and to be cautious about opening attachments even from known sources.

Use complex passwords and change them often.

The rule of thumb is if something looks suspicious, it probably is. Your bank will never ask you for login information, for example, so be very cautious when communicating outside the company both via phone and email.

One practice that can increase security is to use a stand-alone workstation to conduct online banking activities. It should be a computer that is only used for that function and not for email or browsing the web.

How do you avoid living in constant fear?

If you’re protecting your outgoing payments, your checks and your ACH collections with filtering, it should give you some level of comfort. In general, banks are always reviewing transactions.

When the bank calls you to verify a wire, respond right away so they can detect potential fraud attempts. The most important thing to remember is that this should be an ongoing effort.

Regular employee education and discussions with your bank on preventative measures will ensure the best chance of preventing fraud on your business.

How much of an issue is cost?

Many of the online banking protection tools that banks offer are free.

There might be some cost involved with tools such as Positive Pay and ACH filtering, but if you consider the amount of money your business is saving by reducing the risk of fraud, the costs of these products is minimal.

If a check is written for $30 and is cashed for $300,000, that’s a huge loss for your company. When you compare the pricing, it’s nominal compared to the savings and peace of mind you’ll have. ●

Insights Banking & Finance is brought to you by Bridge Bank

How to better prepare for changes in the dynamics of your family business

Small and midsize businesses are particularly vulnerable to life altering changes. Successful business leaders include contingency plans in their business for such events.

However, certain business disruptions — serious injury or disability to key personnel, loss of a spouse or other unexpected “life altering” events — may come as a surprise, especially in a family business.

“Having had the important conversations ahead of time, you are better prepared to deal with significant changes when they occur within your business,” says Betty Uribe, Ed.D., Executive Vice President at California Bank & Trust.

“I have personally witnessed during this economic downturn that the businesses that weather the storms are the ones that planned for change ahead of time and remained flexible to changes as they came,” she says.

Smart Business spoke with Uribe about key points to remember when there are changes in the dynamics of a family business.

Why can these kinds of disruptions have such an impact on family business?

People do not plan for life change. We think we are going to live forever. We think our business is going to last forever. We think our partners are going to be our partners forever. We think our customers are going to be our customers forever.

Normally a business leader is able to keep personal issues separate from the organization’s operations.

But during a divorce, for example, if both individuals are involved in the company, whether in day-to-day management or not, such change begins to infiltrate the business.

This, in turn, affects the decision-making and the future of the business, and has an impact on employees.

How does emotion play into these kinds of situations?

You have to try to remove emotions from the decisions you make about your business, which is difficult for any business owner — family business or not. The owner has created the business from his or her sweat and tears, so it becomes almost like his or her child.

In addition, changes in a family-owned business can be harder because of the emotional ties to the business. You do not necessarily treat a family member as an employee and in doing so, instead of helping him or her grow, you may end up enabling weaknesses.

What planning would you recommend family business owners make prior to changes?

As a smart business owner, plan before emotion and turmoil kicks in. Create a board of directors that can deliver objective third-party feedback.

Consider including your banker, CPA, business attorney, insurance agent, etc., in regular business planning and strategy meetings.

An independent board can help put together a business strategy, which includes areas such as business transfer and contingency plans. You know in case of fire to take the stairs and go out the back door, so why wouldn’t you adopt contingency plans for your company?

By establishing plans and controls in advance, you are in a better position when disruption occurs.

During a divorce, one of the first things an attorney will say is to keep your children out of the conversation and decision-making. So, treat your business like that child and keep business operations separate.

The same thing goes for succession planning. You need objective opinions, because the fact that your child is a competent individual and business owner does not always make him or her the best successor to manage your business.

The chosen successor must agree with your vision for the business, in order to truly preserve your legacy.

You may not be able to plan for everything in your business but having a plan in place allows you to proceed with minimal disruption.

That plan may involve limiting the number of family members in management, or turning to selected professionals on your board in decision-making roles so if your children suddenly have to step in and take over the management of the company, they will have the appropriate assistance in place to help them navigate complex changes.

Preparation is the best way to avoid disruption. Planning is essential to insure your business lives on from generation to generation. ●

Insights Banking & Finance is brought to you by California Bank & Trust

How commercial card creates efficiency for purchasing processes

Commercial card, a program that is sometimes called purchasing, travel or fleet card, has become a hot product as companies realize how it can create efficiencies within their organization.

Commercial card has been around for a while, but businesses were leery of issuing employees credit cards that could lead to fraud and misuse, says Veenindra J. Singh, first vice president and treasury management consultant in the Corporate Services Division at California Bank & Trust.

Today, commercial card not only reduces internal costs when it comes to purchasing practices, but it also — unlike business credit cards — offers upfront controls on usage with a very robust reporting system that captures data, allows automated postings and so forth.

“There is more acceptance because companies have realized that the product has evolved,” Singh says. “It makes sense for a lot of companies to start looking at putting a program such as this in place.”

Smart Business spoke with Singh about how commercial card can benefit your organization.

How does commercial card create efficiency and reduce internal costs?

Typically 80 percent of business purchasing is below a certain dollar amount, and the remaining 20 percent is high-end purchases. However, the approval process for both is usually the same, whether you’re buying a box of pens or a $10,000 piece of software.

With commercial card, you set a benchmark, and then staff uses a card to make all purchases under that limit without layers of approval. Higher purchases go through the normal approval process, and staff still utilizes cards to avoid processes like invoicing, purchase orders, etc.

What about other benefits like upfront controls and robust reporting?

With upfront controls, a company can issue cards to different employees and each one can be restricted as far as usage. For example, if you’ve issued cards to a maintenance group, then those cards could have features turned on that allows those employees to make purchases only at related stores or companies. These restrictions are established by using merchant classifications codes.

In addition, the reporting is robust. Within 48 hours, a company will see the purchases. Commercial card has three levels of reporting; the level of detail you receive on a purchase depends on the merchant’s capability. With the higher levels, there is the ability to capture sales tax, general ledger codes, whether it’s a minority-owned vendor and exact specifications of the purchase.

There also are many reporting segments within the program, such as expense management where an administrator can create expense reports for each employee.

Does size or industry make a difference to how much a company benefits?

Size does matter. Larger companies have more purchasing needs and requirements. Smaller companies can use these cards, but most banks have a minimum, or an annual spend, and if a business is below that threshold the bank probably won’t offer a commercial card solution.

As far as industry goes, all industries can use the product, but there are more benefits to some, such as manufacturers, the travel industry and nonprofits.

What else is important to understand when getting these cards?

Commercial card, which has no interest rate because it is paid off in every billing period, does carry risk for banks. However, banks may be able to work with you to mitigate the risk, and therefore offer the cards, by decreasing the billing period, which can go all the way down to a daily settlement.

Banks only qualify the company, not the individuals who are issued cards. A bank will give the business a total limit, and then you can issue as many cards and assign whatever limits you wish as long as it’s underneath that umbrella.

There are different options for these cards. Some banks have a charge; others don’t. Most cards offer a rebate, but that rebate could either be in the form of points or dollars. Also, some banks require that you have a relationship with them. You can explore the programs from various banks to see which one will fit your organization best.

Insights Banking & Finance is brought to you by California Bank & Trust

How to decide which funding method is best for your business

Business owners face unique challenges and opportunities as they progress through the evolution of their business — and part of that process includes obtaining funding for expansion and growth.

“As you look forward to these opportunities, it’s important to remember that a bank wants to meet with you and understand what your needs are and determine the best method of funding,” says Jason Wells, business banking manager for Central Ohio at U.S. Bank. “Most bankers and relationship managers are looking at every strategy they can to make sure a business thrives.”

Smart Business spoke with Wells about the available funding methods and how to match those to your needs.

What funding methods are available to businesses?

There are generally two. A line of credit, which is for your short-term funding, is available to a business on an annual basis to provide structured working capital. And at some point throughout that year, the business expects to pay back the full amount of the line of credit that’s needed over that time period with interest. It usually takes accounts receivables and inventory to secure these loans.

For long-term capital needs like buying a building or real estate, major equipment purchases, capital improvements, etc., companies usually look at term loans. They are generally secured by inventory, machinery, equipment or real estate.

What are the main factors that determine which method is best for a business?

That’s primarily driven by your use or plans for the funding and the stage of the development that your business is currently in. For the most part, both factors work together.

How can companies best position themselves to get the funding they need?

As a foundation of your business plans, it’s good to develop a solid relationship with the bank. Begin by identifying a banker within the bank that you can work with — generally a business banker — and establish an open line of communication with him or her. You want to talk to that banker on a regular basis about your business needs and plans, so he or she has a strong understanding of your business.

A great way to continue building the relationship is establishing a business checking account or even a business credit card with your current bank. Regularly using and growing your business checking account and repaying a business credit card creates a solid profile for your deposit and repayment history with the bank. This can provide a good platform to launch off of when your business is ready to borrow money from the bank or to pursue some of the other lending opportunities that might be available.

What common issues prevent a business from getting funding from a lender?

The first and most common one is how a business demonstrates its need for funding and the ability to repay a loan. It’s critical to have sound financial preparation and provide the right information to a bank to demonstrate that. A business should always be clear that it generates enough cash flow to be able to pay its expenses, plus pay the loan back and at the end of the day generate a profit as well.

Another issue is a lack of or a shortfall in collateral, which is what the bank uses to offset the risk of lending to a business. The most important thing here is that you, as the business owner, really understand the value of your business, its assets and your personal assets because often the bank will ask you to pledge these to support a loan request.

However, even if your company faces some of these challenges, there are other options. The Small Business Administration (SBA) offers a lot of flexibility to banks with its loan guarantees, where the SBA isn’t directly loaning the funds but provides a guarantee to the bank that the government will repay a portion of the loan if the business owner should default. These loans can provide a business owner longer terms for payment and potentially even lower down payments when a company needs to purchase equipment and real estate.

Whichever funding method you end up taking, it all starts with that relationship with your banker who can steer you through the process.

Insights Banking & Finance is brought to you by U.S. Bank

How to protect your business from internal, external and data security fraud

Fraud is a crime that hides in the shadows. The adversaries often go to great lengths to cover their tracks, and businesses may not realize what they are up against, making it difficult for them to fight it and protect their assets.

“Ninety-nine percent of the time, clients either don’t realize it or don’t adequately address it,” says Michelle Thompson, vice president of fraud risk with FirstMerit’s Merchant Bankcard Division.

Most business fraud involves misuse of credit or debit cards through internal fraud, external fraud and data security fraud — and it may happen more often than you realize.

Smart Business spoke with Thompson and Susie Brindza, director of FirstMerit’s Merchant Bankcard Division, about the steps you can take now to help protect your business.

How does internal fraud typically occur?

One of the most common forms of internal fraud is embezzlement involving credit cards. A company employee processes a return for a purchase that was never made, and the money is credited to their personal credit card.

Business owners don’t want to become overly cynical and suspicious, but so many times when this type of fraud happens the embezzlement comes from a tenured employee who was trusted with the books, such as bookkeepers, accountants or other employees with opportunity and motive.

What can companies do about this?

To discourage internal fraud, it is important to have a second person review transactions. That second set of eyes tells people they are being monitored. Just by viewing the statements, you can see if there are returns being made with no offsetting purchases.

Also, another best practice is to password-protect all company bankcard accounts and closely monitor who has access.

What are common forms of external fraud, and how can businesses guard against it?

External fraud often strikes in the form of illegitimate orders or payments by parties who have illegally obtained someone else’s credit card information.

Different billing and shipping addresses could signify a fraudulent order. Typically, you want those addresses to be the same. It doesn’t always mean it’s a bad transaction — a customer could ship a gift to someone who lives out of state and bill it to his or her credit card and there is no problem. But you should look more closely if the bill-to and ship-to addresses don’t match.

A credit card authorization request only verifies the credit card number is legitimate and there are sufficient funds at that time to process the purchase. An authorization does not check names or addresses for matches, which is important for merchants to remember.

In addition, pay extra attention to shipping addresses. If you see addresses in New York, New Jersey and Florida, while there are plenty of legitimate businesses in those states, you should be cautious. These are some of the most common states criminals will utilize to transport items out of the country.

What’s important to keep in mind about data security fraud?

If you don’t take adequate steps to ensure your firewall and encryption software are effective, you run the risk of hackers stealing the 16-digit card numbers off your hard drive from that unsecure location.

Data thieves also can take advantage of system vulnerabilities during a transition such as when a card authorization is in progress between the merchant and bank. Be certain you have high security standards in place for protecting data and that you’re monitoring everyone to be sure they’re following the standards.

By taking the right preventive measures and being aware of fraud trends by talking to financial experts, you can minimize the risks to your business and limit the opportunities for criminals to steal your funds and information.

Insights Banking & Finance is brought to you by FirstMerit Bank

How banking locally benefits the economy, your business and you

Your banker is here to help you … really. Local bankers who have a presence in your market work in close proximity to your business. They understand the local economy and markets, and work to understand you.

“Bank employees are hired to make a difference for your company, not to push products,” says Jeff Hastings, market president at U.S. Bank, Central Ohio. “They’re working to offer ideas that are beneficial to your life and your business.”

A banker can be a business owner’s trusted adviser, forging a close relationship in which advice can be shared on decisions that affect a business owner’s entire life through loan decisions and investment strategies.

“It’s much more than taking deposits,” he says.

Smart Business spoke with Hastings about the benefits of a strong relationship between business owners and bankers.

What should a local business look for when choosing a bank?

One of the most important things is whether the decision-makers are familiar with your local economy and your industry. You should also have quick and easy access to your representatives and the different lines of business they work on for the benefit of your company.

What are some common misconceptions businesses have about banks?

A common misconception is that banks only lend money when companies don’t need it. That’s far from true. Businesses need a strong relationship with their bank, which means facilitating open communication, giving bankers the information they need to address issues, good and bad, in a timely and proactive manner. It really is a bank’s intent to help companies grow in any way.

In some cases, bank loans are perceived as a commodity. But a good banker is more than that. He or she becomes a value-added adviser to the company if there’s solid communication.

What impact does banking have locally?

There may be no other state in the country where banking has a bigger influence on the local economy than Ohio. There are hundreds of community banks and multiple regional banks headquartered in, or that have major presence in, the state, and there’s not an industry they don’t impact.

A healthy banking industry has a dramatic impact on the city of Columbus. During the recession, when the banking industry had problems, there was a negative impact on the nonprofit and arts communities. Since the industry has regained its footing it’s been able to contribute more fully to the art and philanthropic communities.

How can a business benefit from a strong relationship with their local banker?

Working with an institution that’s located near a business means those bankers should have a handle on how the local market is affecting business owners — changes in the Commercial Activity Tax and unique workers’ compensation issues, for example. Bankers also should find ways to make introductions between business owners and service providers, or link suppliers with customers in new markets or industries.

Having access to a local banker generally speeds up decision-making when companies need new lending products or other services. The more local they are, the better handle they have on local companies’ needs.

Also, ‘Made in Ohio’ is an important designation. Whether its B2B or B2C, people in Ohio tend to be loyal to businesses run by people they know and like. It’s a common theme in this state to do business with local businesses, and the loyalty factor has a big impact.

How do businesses and banks work together to improve the local economy?

The banking industry has such a dramatic impact on the economy. It helps people start new businesses, fund new lines of equipment, and provide working capital management, allowing companies to hire new employees and introduce new products.

Central Ohio is a good example of how banks can have a positive affect on an area. For example, the region has had incredible housing growth for 15 years that would not have happened without the local banking community. It’s further evidence that banks within this community are working to do the right things that have a positive impact on the community where we live and work.

Insights Banking & Finance is brought to you by U.S. Bank

How a few simple controls can make the difference in fraud prevention

By and far, the most pervasive fraud risks to companies are cybercrime and internal fraud.

Cybercrime takes many forms — from large fraud operations such as credit card data breaches to malware attacks that collect private information from company computers, including system passwords. At the same time, a lack of internal controls for protecting company assets and reconciling accounts regularly can result in significant losses.

“The risk of corporate fraud, internal and external, places companies in a precarious position. They need to balance routine business flow and operations with preventing and detecting fraud (particularly online fraud exposure) that may result in operating losses,” says John Harrison, senior vice president at California Bank & Trust. “In many cases, a few simple controls can make the difference between a profitable year and a large financial loss.”

Smart Business spoke with Harrison about how companies can better protect themselves from fraud risks.

How has the increase in electronic payments changed the fraud prevention landscape?

Billions of people have benefited from instantaneous access to information from anywhere, at any time. But these advances have also aided criminals who use technology to steal identities, credit card numbers and cash. Gone are the days when people or companies were robbed in person. It’s more lucrative and easier for a cybercriminal to steal from the comfort of a laptop.

What business controls would you recommend to reduce the risk of fraud?

Tried and true common-sense controls are a first step. Access to blank check stock must be monitored. Simple dual accounting controls, such as ensuring staff responsible for fulfilling customer orders are different than employees reconciling order invoice payments, reduces fraud opportunities. Whenever possible, reconcile accounts daily (easily available through online banking) but always at least monthly, and report discrepancies immediately.

Restrict online access on a need-to-use basis. Use dual authentication with online transactions such as online transfers and outgoing wire transfers. Always employ strong online passwords and change them regularly. Utilize secure entry tokens for all users who perform administration functions or process online payments.

Beware of customer emails requesting a change to wire destination instructions, as hackers can compromise email passwords through malware attacks and social engineering. If in doubt, call the customer to confirm any out of the ordinary payment requests or change to a payment destination.

What other steps can help prevent fraud? 

Some additional controls to employ include:

  • Using online services like Trusteer’s Rapport, a free program that helps detect and mitigate malware attacks and phishing attempts. 
  • Avoid downloading programs or files from unknown sources, which could include malicious code and fraudulent programs. 
  • Limit the use of flash drives, CDs or other portable media that can transport and install malicious code.
  • Talk to your bank about fraud prevention products and services, such as Positive Pay, which matches check issue information against checks presented to identify discrepancies or suspect checks. 
  • Keep security software, anti-virus programs and firewalls up to date.
  • Never conduct casual Web-surfing or social media site visits on computers used for business transactions and payments. You can dedicate specific computers for online business tasks only.

These controls are a matter of exercising prudent, common-sense information protection and accounting controls.

Is there anything else you’d like to discuss?
Fraudsters are always one step ahead, devising new, clever techniques to separate companies from their money. The old saying ‘if a deal sounds too good to be true, it probably is’ is still true. A business offer from an unknown person via email promising a large profit for a quick transaction is a huge red flag. Educated people fall prey to fraud all the time; due diligence, prudent internal controls and common sense are the keys to preventing losses.

 

Insights Banking & Finance is brought to you by California Bank & Trust

How letters of credit can ease the stress of doing business overseas

Companies that only do three or four international sales a month are often not aware of the various payment mechanisms that are available to them.

“They may not focus on the risks that come with international transactions and how banks can help mitigate those risks,” says Ken Rosenberg, senior vice president and group manager for the International Banking Division at Bridge Bank.

Smart Business spoke with Rosenberg about letters of credit and the value they can provide in protecting companies engaged in international commerce.

What is an example of the risk businesses face doing business overseas?

Businesses may not have in-depth knowledge of their counterpart’s business, history and credit standing or know the legal environment in which it operates. So there might be a risk of a customer being unable to pay or capital being locked up or frozen by a foreign government.

The worst-case scenario is your goods arrive in a foreign country and the buyer is either unable or unwilling to pay for them. The seller then owns goods that are sitting in a foreign country and has to either be able to resell them or bring them back.

How can a business protect itself?

A letter of credit provides value to both the buyer and the seller. It is a foreign bank substituting its credit quality for that of the buyer. The foreign bank issues the letter of credit and in doing so, promises to pay the supplier as long as the supplier delivers documents proving delivery of goods or services. Presumably, the letter of credit comes through the seller’s bank, but it could also be advised through a different bank. In most cases, the seller wants that letter of credit coming through someone it knows.

The letter of credit provides security for the seller by guaranteeing payment upon delivery of goods or services. For the buyer, the letter of credit means that a payment is only being made when verification has been received that the goods or services have been shipped or delivered.

The letter of credit can also address country risk. When the domestic bank confirms the obligation to pay on that letter of credit, you now are taking U.S. risk rather than foreign country risk.

What is involved in getting a letter of credit?

The issuance is going to be based on the credit available to the applicant or the buyer. It can range all the way from a client that has an unsecured line of credit with a sublimit for issuance of letters of credit to a situation where the client provides the cash in advance for the bank to hold. It just depends on the relationship between the bank and the customer.

There are typically minimums for issuing and negotiating letters of credit. If you are below a few thousand dollars, the cost of using a letter of credit becomes a significant part of the value of the transaction. Once you get above a few thousand dollars, the costs are very minimal.

Is a letter of credit the same as a contract?

The letter of credit is simply a method of making payment. There has to be a contract or purchase order negotiated between the buyer and the seller that calls for the letter of credit as the method of payment. It is a contractual obligation for the bank to pay upon presentation of documents, but it is not the contract between the buyer and seller.

Exporters must be very careful about their ability to perform against the letter of credit. When they get a letter of credit issued in their favor, they really need to be certain that they can deliver the documents that it calls for including the invoice, bill of lading, insurance certificate and others that may be required by the buyer. Some of these documents may have to be obtained by a third party depending on shipping arrangements or other factors. Their bank’s trade finance specialists can guide them through the process and advise them on best practices.

Insights Banking & Finance is brought to you by Bridge Bank