In an increasingly digital age, the use of electronic payments is becoming more and more common as professionals across every industry embrace the ease and speed of payment platforms like Authorize.net, Square, and PayPal. That said, with new technology comes new problems, and in some circumstances, convenience paves the way for payment disputes.
As a contractor, you should strive to embrace electronic payments with reserve. Just like any other type of payment, electronic payments can lead to disputes that derail projects and challenge professional relationships. In this article, the Orlando construction attorneys at Cotney Construction Law will discuss some important steps contractors can take to avoid electronic payment disputes. Remember, the more willing you are to accept payments through different platforms, the more likely you will be to get paid. However, it also opens you up to a broad range of potential disputes which must be handled with diligence and care.
An Industry Targeted by Fraud
Internet fraud, which typically includes email schemes, spear phishing tactics, and scams of varying levels of sophistication are utilized to redirect inbound funds from a contractor’s account into malicious accounts designed to quickly transfer funds overseas. Why is the construction industry such a popular target? Well, the main reason is the value of the transfers being made to drive projects forward. Monthly billings for labor, materials, and equipment are typically large, and the highly publicized (i.e., press releases, media coverage, internet marketing campaigns) nature of construction puts a spotlight on the potential spoils of a fraudulent attack. Employing contractual and processing controls is imperative if contractors want to prevent fraud, but doing so without help can be harder than expected.
Gone in the Blink of an Eye
When a contractor falls for a fraudulent scheme, the perpetrators move quickly to execute their plan. Theft of funds can be worth anywhere from ten thousand dollars to ten million dollars, and once they’re gone, it can be difficult to trace them to their destination. By the time a contractor recognizes what has happened and reports it, it could be too late to recover. Once funds have funneled into countries like China, North Korea, or Russia, recovery is virtually hopeless. To make matters worse, insurance typically restricts the amount of funds that can be reimbursed, and the slow turn around on reimbursement can lead to project delays, increased budgets, and further disputes.
Protecting Your Funds
Another unfortunate effect of electronic payment fraud is that it causes turmoil between contractors, subcontractors, and owners. When payments are delayed, temporarily or indefinitely, it’s going to lead to a lot of displeased project participants. This doesn’t mean you should disavow electronic payments altogether, but you should take the following precautions to prevent fraud from targeting your funds:
- Implement project controls
- Educate accounting employees about fraudulent schemes
- Utilize audit principles
- Negotiate contractual terms that cover payment authorizations, verified accounts, how payment request changes can be handled, transfer procedures, confirmation procedures, culpability for losses, insurance coverage, and re-confirmation of account numbers and payments
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.