Technology Buyers and “Advance Fee Fraud”

First – we’re not really writing that technology buyers are defrauding sellers – so don’t send nasty letters.  But there is a common technique that buyers use that has a parallel to the infamous Advance Fee Fraud, and which provides a negotiation lesson for sellers.

An Advance Fee Fraud, also known as a “Nigerian letter” scam, or a 419 scam (named after the part of the Nigerian criminal code that deals with fraud), or a bunch of other names, is not unique to Nigeria.  Perhaps you have received the email…

DEAR SIR,

CONFIDENTIAL BUSINESS PROPOSAL

HAVING CONSULTED WITH MY COLLEAGUES AND BASED ON THE INFORMATION GATHERED FROM THE NIGERIAN CHAMBERS OF COMMERCE AND INDUSTRY, I HAVE THE PRIVILEGE TO REQUEST FOR YOUR ASSISTANCE TO TRANSFER THE SUM OF $47,500,000.00…

In case you have received a version of this, take our advice – throw it away.

The fraud plays out as follows: in order to release and share in a large sum of money, you have to send either “good faith” payments or payments which allow the processing of the funds.  As you might expect, the flow of money is one-way:  from you to the scammer. The victims’ losses for the 419 scam in 2005 were estimated to be over $3 Billion worldwide.

How does this relate to technology buyers?

Example #1: The buyer says, “In order for me to be confident in your product, we need you to do a proof of concept (POC) at my location.  That will help me understand if the benefits that you projected are real.”  Many times, the seller confidently proceeds down the POC path, spending money and proving that what they said would happen does, in fact, happen.  What next?  The buyer decides there are other issues, and still doesn’t sign. The seller has laid out money in anticipation of a future benefit, which does not accrue.  It’s an Advance Fee Fraud.

Example #2: Seller and buyer are in heavy negotiations for a product or solution.  Near the end of the negotiation, the seller says, “Look, I have a lot of future business coming.  If you give me a great price on this agreement, you’ll be the front-runner for the big one coming up.” If the seller believes it, most times conditions will change by the time the “future business” comes up, and the negotiation will start from scratch. An Advance Fee Fraud.

We are willing to concede that this is not always a scam.  Sometimes “good faith” means “good faith”, not a guarantee.  But the error the seller might make in each of these cases is the same, and it parallels the Advance Fee Fraud.  The seller advances something, for the future promise of a big return.  As experienced negotiators, we know that the big return often fades away instead of getting delivered.

What to do?  As a seller, make sure that your return is assured before you advance that “first payment”.

In the case of a POC, agree on two things with the buyer up front:

1.    Successful results from the POC will result in a signed order.

2.    The terms of that order.

In the case of “big future business”, consider responding like this, “We are interested in the future business.  If you would like to agree to do all of that business with me now, your terms will reflect the size of the agreement.  If you choose to do a smaller agreement now, your terms will also reflect the size of the (smaller) agreement.”

Don’t fall for “Advance Fee Fraud” from your buyer.  Make sure that there is a real future return before you make an investment. (td)