Nick Chandi is the CEO of Forwardly, an award-winning B2B payment platform that helps US businesses send and receive payments faster.
I’ve seen too many small-business owners wake up to a payments nightmare: funds missing, chargebacks piling up or fraudsters slipping through the cracks. It’s not a matter of if something will go wrong, but when. The reality is, payment risk management is a necessity. If you’re not paying attention to it now, you’ll definitely pay for it later, sometimes literally.
Why Payment Risk Management Matters
If the data is to be believed, 80% of surveyed organizations were targets of payment fraud in 2023. Small businesses are especially vulnerable because they often don’t have the robust security infrastructure of larger companies. A fraudulent payment can drain your bank account or even put you at risk of regulatory fines.
And it’s not just fraud. Delayed payments, chargebacks and compliance violations can all wreak havoc on your operations. If you don’t have a plan in place to mitigate these risks, you’re rolling the dice with your company’s financial future.
Key Payment Risks And How To Mitigate Them
Fraudsters are getting smarter. They use stolen credit card details and social engineering tactics to steal from businesses. Another growing problem is chargeback fraud (also known as “friendly fraud”), where customers dispute legitimate transactions, forcing you to refund them. This not only results in lost revenue but also increases processing fees and damages your business reputation.
To mitigate this risk, businesses should use strong customer authentication (SCA) to verify transactions, implement AI-driven fraud detection tools to spot suspicious activity and keep detailed records to dispute chargebacks effectively.
Late or failed payments are another major issue. A study found that over 70% of small businesses experience cash flow issues due to late payments. If your customers aren’t paying on time, your entire business suffers. Inconsistent cash flow makes it difficult to meet payroll or pay your suppliers.
To counteract this, you can offer early payment discounts to encourage on-time payments and use automated invoicing and reminders to reduce delays. Accepting multiple payment methods to increase flexibility is another method for encouraging timely payments.
Compliance and regulatory issues can also be a headache. Payment regulations are evolving constantly, and small businesses must comply with rules such as PCI DSS for card payments and NACHA guidelines for ACH transactions. Noncompliance can result in hefty fines.
To stay compliant, regularly audit your payment processes and train employees on best practices for handling sensitive financial data. Using encrypted connections for transactions, limiting access to payment systems to only those employees who actually need them and never disclosing payment information via unprotected channels such as email are a few recommended practices. I’ve seen what happens when these precautions aren’t taken. A little knowledge can go a long way toward shielding your business from costly disruptions and fraud. Working with fintech providers that have built-in regulatory safeguards can help, as well.
Cybersecurity threats are another growing concern. With cyberattacks on the rise, small businesses are prime targets. Hackers use tactics including phishing, malware and ransomware to gain access to payment systems.
To mitigate these threats, businesses should use encryption and tokenization to protect sensitive data, implement multifactor authentication (MFA) for all payment transactions and regularly update software and security patches to close vulnerabilities.
Fintech’s Role In Reducing Payment Risks
Fintech is making it easier than ever for small businesses to reduce payment risks. Automated accounts payable (AP) solutions offer built-in fraud prevention, real-time transaction tracking and compliance management—without the complexity of traditional banking systems.
Real-time payments reduce the risk of failed transactions and improve cash flow predictability. Unlike traditional ACH payments, which can take days to process, real-time payments ensure that funds move instantly. This reduces delays and improves liquidity. Some key benefits of real-time payments include immediate transaction settlement, which reduces the risk of chargebacks; enhanced cash flow visibility for better financial planning; and reduced dependency on credit lines due to faster fund availability.
AI-powered fraud detection is another game changer. Machine learning algorithms can analyze transaction patterns and flag anomalies in real time. This proactive approach helps businesses detect fraud before it leads to financial loss. AI-powered fraud detection uses predictive analytics to identify high-risk transactions and sends automated alerts for unusual payment activities. These tools integrate with existing payment platforms.
Fintech-powered compliance solutions also help businesses navigate the complex world of payment regulations. These solutions simplify compliance by automating regulatory checks and maintaining secure transaction records. Some advantages include automatic compliance with industry standards and regulations, secure data storage and encryption to prevent breaches, and real-time reporting tools to track compliance status.
Be Proactive, Not Reactive
Take a close look at your payment processes today. Are you vulnerable to fraud? Are you struggling with late payments? Do you lack confidence in your compliance measures? If your answer to any of these questions is “yes,” now is the time to make changes.
The biggest mistake I see small-business owners make? Assuming payment risks won’t affect them. The reality is, every business, big or small, is a target. By taking proactive steps now, you’ll avoid costly disruptions later.
If you wait until fraud or a compliance issue hits, you’ll be dealing with lost money, reputational damage and possibly even legal consequences. But if you take small, consistent steps now—like upgrading security measures, reviewing payment processes and using smarter fintech tools, you’ll prevent disasters before they start.
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