FCCA report: Scams against SMEs also affect the functioning of competition

Scams weaken the business opportunities of SMEs in many ways. According to a report by the Finnish Competition and Consumer Authority (FCCA), however, the effects of scams extend more widely to the entire society. Scams can be prevented, for example, by improving SMEs’ business know-how. Opportunities for combating scams by means of legislation should also be put to more efficient use.

Scams hamper business and the conditions under which companies operate. Small businesses are especially vulnerable to scams, as they often have less expertise and fewer means to detect them and recover their funds than large companies.

According to the FCCA’s report, the scams most commonly encountered by SMEs relate to directory services, fake or forged invoices, and tax refunds. In addition to direct financial losses, investigating scams costs SMEs time and money that could used to develop their business. Moreover, scams affect the well-being of entrepreneurs and staff.

Scams also have more extensive impacts on society. Businesses that have been the victim of a scam strive to recover their losses by raising prices, which forces consumers to pay more for their goods and services. Investigating scams burdens authorities’ resources that could otherwise be used to provide services for businesses and consumers.

Scams also hinder the functioning of the market and healthy competition. The competitive position of SMEs suffers from the fact that they have fewer opportunities to carry the costs incurred from scams over to the prices of their goods and services than large companies. Ultimately, scams weaken businesses’ and consumers’ trust in honest businesses.

Business know-how in key role when combating scams

Attempted scams against SMEs cannot be prevented altogether, but it is possible to restrict the success of scams. According to the FCCA’s report, a considerable proportion of scams can be explained by SMEs’ inadequate business know-how. Businesses need information about matters relating to contracts and debt collection, in particular, as well as the ability to detect and avoid scams.

The business sector and the authorities could improve the position of SMEs that have been the victim of a scam by quickly disseminating information about recent scams and by providing practical instructions. Opportunities for combating scams by means of legislation should also be put to more efficient use and legal practices and self-regulation developed to combat scams. On the other hand, an ever larger proportion of scams originate from abroad, which means that EU-wide rules are needed alongside national legislation.

Scams against SMEs, FCCA Report No 2/2017 (in Finnish)

Further information: Helena Tuorila, Senior Research Officer, tel. +358 29 505 3653