Editors note: This post was contributed by Nick Fischer, CEO of Fraudblock

If you’ve done any research into building a drop shipping business on Shopify, you’ve probably seen some pretty hyped up stories. There’s no shortage of marketers trying to hook new entrepreneurs.

They start with glittering anecdotes about someone who started a Shopify drop shipping business making $30,000 a month their first month, then quit their job and traveled the world to post endless selfies of drinking champagne on yachts.

“Click here to watch the FREE webinar and learn all the secrets!” Starting a drop shipping business on Shopify is not a quick path to easy riches.

It’s just the same as starting a business, only with the incredible advantages that the Internet offers entrepreneurs today: Practically no overhead or fixed costs and the lowest-cost marketing environment in history.

But going into drop shipping on Shopify still demands the same “sweat equity” costs from the entrepreneur that traditional, brick and mortar businesses always have. That means putting in the work and paying attention to all the important details.

One of those important details is fraud prevention.

Because the Internet is so wide open, following best practices for fraud prevention on Shopify may be even more important than it is for conventional businesses.

Here are the threats you have to defend your business against:

  • Drop shipping scams
  • Fraudulent chargebacks
  • Fraudulent purchases

There are a number of solutions to stay vigilant against these threats. Here is an overview of these three more common forms of drop shipping fraud, along with some guidelines for Shopify fraud prevention to keep your profits safe from theft by cybercriminals.

Preventing Drop Shipping Wholesaler Scams

If you’re running a drop shipping business on Shopify, the first way you could be defrauded is by the drop shipment wholesaler. There are sadly a lot of drop shipping scams out there.

A brazen, fly-by-night operation could go so far as taking an online retailer’s money for an order and never ship it to the customer. The angry customer keeps asking the retailer when their product is going to arrive, then finally demands a refund.

The equally angry retailer repeatedly contacts the wholesaler, but never can seem to get a hold of them, and when they do, they get the run-around.

A more common drop shipment scam is a wholesaler charges an excessive fee just to be on their list for drop shipment whether the Shopify business places an order with them or not. Or they charge so much for drop shipments, they could hardly be called wholesalers. That leaves the Shopify business with thin profit margins and little to show for all their work.

These scams are pumped out there to new Shopifiers in lists or directories of drop shipment companies. Sometimes the scammers even get entrepreneurs to pay for the list itself, too.

Best Practices for Shopify Store Owners

To prevent this kind of fraud, use common sense and free resources like Google to find the best, biggest, most reputable drop shippers out there. Do your own investigating. Find reviews on your potential wholesaler. Make sure they’re a reputable company or platform that vets suppliers.

Some of the biggest, most trusted, Shopify-recommended sources for drop shipping businesses are: AliExpress (owned by Alibaba Group), Oberlo Marketplace, Worldwide Brands, SaleHoo, Doba, and Wholesale Central. Wandering off the map is fine (and a great way to find unique inventory with lucrative pricing), just be sure you know what you are signing up for by doing your research.

Preventing Shopify Fraud from Customers

Once your supply side is safe, you have to stay vigilant for Shopify fraud from the customer side. The hazards here are fraudulent chargebacks and fraudulent purchases.

Fraudulent chargebacks are when the “customer” falsely claims they never received the product and initiates a chargeback to refund their money. But you’ve already forked over payment to ship them the product, taking the wholesale price of the order out of your pocket.

Fraudulent purchases are when the “customer” commits identity theft and makes a purchase on your store using a stolen identity. The real owner of the stolen payment method then rightfully initiates a chargeback. The cybercriminal gets a free order. And you’re left empty-handed, stressed, and wondering whether you really want to keep trying to build your Shopify business.

The good news is that there are measures you can take to prevent both of these kinds of fraud.

Best Practices for Shopify Owners

To avoid falling victim to fraudulent chargebacks or fraudulent purchases, you have to pay attention to and investigate high risk orders.

Don’t be too thrilled if you get an order with a basket volume that’s too good to be true. Unusually, high purchase amounts are high risk. They need to be investigated further.

You might find more red flags, like: Is the customer’s IP address for a location far away from the shipping address? It’s a high risk order. It’s actually quite easy to look up and track a location.

Is the billing address significantly far away from the shipping address? That’s another red flag.

You can also run the customer’s email address through search engines if the order seems suspicious. It might turn up flagged as a known email address used for fraud before.

Calling the phone number for a high risk order is a good idea. Keep it breezy, use some excuse that you’re calling to verify their order, and ask them some questions. See if it raises any more red flags or feels legitimate.

Trust your instinct if you don’t feel right after the call. If the phone number is invalid, it’s another red flag. If someone picks up and says , “Huh?” it’s probably fraud.

Shopify can help you identify high risk orders. Their built-in Fraud Analysis tools automatically checks each order for common signs of fraud. However, if you’re using a drop shipping app that automatically fulfills new orders, you usually don’t have time to manually investigate an order, because it has already been sent to your wholesaler. Here, FraudBlock can help, which is an app developed by ShopFox that automatically cancels and refunds high risk orders – which is especially useful if you’re starting to do a lot of volume.

If you’re looking for even more protection, you can pay for Shopify’s Fraud Protect. It’s essentially fraud insurance that protects you from fraudulent chargebacks for protected orders for a small fee. There are also a number of third-party apps to help find and prevent fraud on Shopify’s app store.

All in all, while it’s certainly true that drop shipping on Shopify comes with its own risks and potential for fraud, there are a number of tools available to merchants to effectively combat fraudsters, such as Shopify’s own fraud analysis, FraudBlock, and FraudProtect.

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