August 9, 2023 Three Steps to Fight the Next Wave of Payment Fraud

How manufacturers can build a fraud proof supply chain.

By Baptiste Collot, Co-Founder and CEO of Trustpair

Seventy-two percent of manufacturing executives cite the persistent shortage of critical materials and ongoing supply chain disruptions as their biggest challenges in 2023. Many are diversifying their global supply base and increasing the number of suppliers they source from overall to build supply chain resilience.

These moves, while smart from a supply chain perspective, can lead to higher vulnerability of  payment fraud. The likelihood of a fraudster usurping the identity of a supplier and intercepting the payment increases as companies manage more vendors across the world. Redistributing the supply base also adds operational complexity from managing payments across a globally diverse set of vendors.

Fifty-six percent of U.S. companies were targeted with at least one fraud attempt last year. As supply chain diversification continues, are manufacturing leaders prepared to fight the next wave of fraud in their supply chain?

The Payment Fraud Outlook for Manufacturers

Sixty-four percent of business leaders say it’s harder to fight fraud now than just four years ago. The overall annual cost of payment fraud has ballooned to $20 billion as a result. Why is this cost so high? Because large manufacturers have upwards of tens of thousands of unique vendors spread across dozens of countries. Their finance, accounts payable and treasury teams rely on manual controls and do not have the appropriate tools to fight fraud in an increasingly sophisticated landscape.

Fifty-five percent of successful fraud attempts are perpetrated through credential or information changes on legitimate payments. Modern fraudsters break into a supplier’s email database, understand how that supplier communicates with the manufacturer’s finance team and impersonate that vendor to collect the payment. Phishing emails are also becoming more sophisticated. It’s never been harder to spot when you are at risk of payment fraud.

What’s worse is that 70% of companies are using manual processes like phone calls or emails to check their supplier credentials before making a payment. These outdated processes don’t give finance teams true assurance that they are speaking to the real vendor and paying the correct bank account. Vendor data is also unreliable. Suppliers can close their doors, go through a merger or acquisition, or change their bank account information, making roughly 30% of existing vendor data in financial systems outdated. The combination of bad data and manual processes allows sophisticated fraudsters to strike with increasing degrees of success. But manufacturers can fight back.

Fight Fraud in Three Steps

Here are three steps manufacturers can take today to ensure a fraud proof global supply chain.

1. Lean on automation.

Most companies are confident in their internal processes – until fraud hits. Manual controls eat up teams’ time and don’t keep their organizations protected in today’s fraud landscape. Automation plays a vital role in organizations’ fraud prevention strategies because it can instantly validate the bank accounts of vendors before making payments and helps teams ensure that they are paying the right vendor and bank account every single time. Leveraging automation also helps manufacturers validate accounts at scale across their globally diverse supply base. This is becoming more important as companies continue to expand their vendor networks to boost resilience.

2. Increase reliability of vendor data.

Given the high and frequent turnover of vendor data, regularly screening and cleaning your vendor information to make sure it’s up to date is foundational for fighting fraud. These data cleansing processes can be time consuming, however, which can lead teams to cut corners or put off the task entirely. Leverage technology to ease the burden. Technology can alert you of anomalies and errors in your data, which enables you to focus on the information gaps that need your attention the most. If something changes in your vendor information, such as a supplier opening a new bank account, you know right away and can check and make sure the change is legitimate well before it’s time to pay that supplier, reducing your fraud risk.

3. Empower your teams.

Fraud prevention is a shared responsibility. Collaboration across the finance, treasury, accounts payable and risk management functions is critical for defending an organization against fraud. Break down the silos between these departments. Build trust by opening the lines of communication between these teams but segment each team’s actual duties when it comes to fighting fraud. Making ownership of fraud prevention steps clear instills accountability across teams by making actions traceable.

It’s also important to build fraud awareness across your organization and encourage a culture where employees feel empowered to speak up if they see suspicious behavior. Hold trainings on the latest fraud techniques so employees can understand how fraudsters operate and can spot risks and signs of fraud more easily.

Looking forward

Over half of companies believe fraud attempts will increase in the next year. As companies seek to build supply chain resilience by actively expanding their global supplier networks, taking steps to reduce the risk of vendor payment fraud will be even more important. The cost and impact of fraud can be just as disruptive as the supply shortages manufacturers are aiming to avoid.

About the Author:
Baptiste Collot is the Co-Founder and CEO of Trustpair. He works with large enterprises across the world and helps them protect their businesses against the growing risk of vendor payment fraud.

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