How Business Owners Can Avoid Vendor Fraud

Outsourcing takes trust – trust that the vendor will maintain the same level of client service, uphold your quality standards, and keep your information safe. When this trust is exploited by fraudsters, it can lead to financial losses and even damage to your hard-earned reputation. As a business owner, it’s important to take measures against vendor fraud. Here are some tips:

Conduct Vendor Due Diligence

It’s important to create a repeatable due diligence process to conduct before you work with any new vendor. This includes background checks to verify a vendor’s legitimacy. A background check can inspect business registrations, financial stability, and references from other clients.

Due diligence shouldn’t stop once the contract is signed. Regularly monitor your vendors for any changes in their business practices or financial status to help ensure they’re still a reliable and trustworthy partner.

Verify Payment Changes

Imagine receiving an email from your trusted catering vendor who is requesting a change in payment details. It might seem routine, but this is a common tactic used by fraudsters. To avoid falling into a trap, always verify these changes through a secure method.

If a vendor requests a change to where payments are sent, whether it’s ACH, wire, or check, verbally confirm the change using a known phone number for the vendor – not necessarily the number listed in the email or invoice, as these could be part of the scam. This step ensures you’re talking to the legitimate vendor and not a scammer.

Use Positive Pay

Protecting your account from fraud is crucial. Our Positive Pay tool adds an extra layer of protection to help manage and secure your financial transactions. Positive Pay helps detect and prevent fraud before it happens by matching all issued checks with the check presented for payment. If there are any discrepancies, they’re flagged for review, ensuring that only authorized transactions are processed.

Pay with ACH

Paying vendors with ACH is more secure than wire transfers or paper checks. Plus, it’s generally less expensive. If there is an error, fraud, or dispute, ACH payments can often be reversed. Plus, the ACH network is regulated by the federal government and managed by NACHA which sets security standards.

Divide Responsibilities

Creating a foundation of security helps prevent vendor fraud. If you have multiple employees, divide responsibilities so they’re each responsible for different stages of the payment process. For example, one employee could handle vendor setup, another could approve payments, and a third could reconcile accounts. Also known as dual control, this can reduce the risk of fraudulent activities going unnoticed.

Educate Your Employees

Your employees are your first line of defense against vendor fraud. Make sure they know what to look out for and how to respond to suspicious activities. Regular training sessions can help reinforce these practices and keep your team vigilant.

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Vendor fraud can have severe consequences for your business, but by being proactive, you can significantly reduce the risk. If you have any questions or need further assistance, reach out to our team. As always, we are here for the success of your business!