Is that B2B “free” offer really free?

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If you own a small business or are active in a nonprofit, the alleged modus operandi of New York- and Illinois-based A1 Janitorial Supply Corp., three other companies, and two individuals should sound a warning. According to the FTC, the defendants called offices to offer a free sample of a cleaning product – but then cleaned up in an altogether different way.

The complaint charges that the defendants cold-called small businesses, hotels, municipal agencies, charitable groups, etc., with an attractive deal: a free sample of drain cleaner, herbicide, or other chemicals used on the job. Sometimes the people who answered the phone said yes to the freebie and sometimes they said no. But the FTC says that in either case, the defendants followed up with an invoice demanding payment for the merchandise that had been represented as “free.”

And it didn’t end there. According to the lawsuit, the defendants often repeated the cycle by shipping increasingly larger quantities of the same product to the same businesses, followed by insistent invoices for increasingly high dollar amounts. When businesses complained about the later shipments, the defendants allegedly told them they were just part of the original “order” that had to be resent because items were damaged in transit. And when businesses tried to fight back against the dunning notices and collection calls, the FTC says the defendants insisted that the employee listed on the invoice had placed the order. According to the complaint, some businesses paid $1,000 or more in an effort to put an end to the unauthorized shipments and billing.

The complaint charges A1 Janitorial Supply Corp., an Illinois corporation, three New York-based businesses – Century Manufacturing Corp., Commercial Maintenance Chemical Corp., and Global Direct Resources – and New Yorkers Eric Sternberg and Matthew Sternberg with violations of the FTC Act, the Telemarketing Sales Rule, and the Unordered Merchandise Statute. (Read the complaint for more identifying information.) The case is pending in an Illinois federal court and a judge entered a temporary restraining order on November 1, 2017.

What can your business do to reduce the risk of getting caught in a supply scheme?

  1. Educate your employees. Companies with purchasing departments often have procedures in place to screen out supply schemes. That’s why some outfits target smaller entities where “I’m with a customer. Could someone grab line 2?” is the order of the day. Explain to your staff how supply schemes work and post a reminder near the phone. A business-like “Thanks, but we’re not interested. Buh-bye.” may not work 100% of the time, but it’s a useful first line of defense. And remember that if you receive an item you didn’t order, you have a legal right to keep it as a free gift.
  2. Consolidate supply buys with a reliable (and skeptical) staffer. Supply schemers depend on the fact that an employee may mistakenly assume that a colleague placed the mysterious order at issue. So even in a small office it makes sense to centralize the responsibility for buying supplies and making recurrent purchases with one person – preferably an employee with a finely-honed baloney-o-meter.
  3. False “free” offers could wind up costing you in the long run. At a small workplace, the other advantage of a designated supply staffer is his or her ability to differentiate between a legitimate offer from a reptable vendor and a possible supply scheme. If your business has been the target of a questionable promotion, report it to the FTC.

For more tips on protecting your company from possible B2B deception, visit the FTC’s Small Business page.

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