Onboarding a vendor without having proper guidelines in place can severely impact your business. Vendor onboarding fraud and the consequences that come along can be fatal for a business. So, how can you know the vendor you’re onboarding is the right is not a fraud?
Every business regardless of its nature of business needs to have a vendor onboarding checklist. To avoid instances of fraud that can harm your business, you need to follow the required due diligence.
One of the biggest parts of vendor onboarding is to make sure that you’re keeping up with all the changing laws, rules, and regulations.
What is Vendor Onboarding?
Vendor onboarding is the process of collecting all the crucial information that you need to approve a vendor for your organization. A vendor allows businesses to buy supplies without having to go through a long process. Vendors in turn issue invoices for businesses. Let’s say you onboarded a fraudulent vendor, they’ll end up issuing invoices for things you haven’t purchased. This is how most fraudulent vendors operate and earn money.
The vendor onboarding process needs to have an ideal checklist. By following the checklist, every business can make sure they’re onboarding the right vendor.
Vendor onboarding is the first step of the vendor management process. If a business doesn’t have a vendor onboarding process, it can become a part of fraud. When you follow a vendor onboarding checklist, you can reduce the risk of fraud, eliminate additional costs, and achieve a higher ROI.
When you build a vendor onboarding process for your business, it becomes easy to avoid pitfalls that come along with bad vendor management.
Not just customers, you also need to nurture relationships with your vendors. A well-thought-out vendor onboarding process can help you make your relationships with vendors strong. It also offers other benefits:
To start building your vendor onboarding process, you need to keep a couple of things in mind:
To make the process easier, you need to make sure that you’re not missing out on any crucial factors.
Here’s a vendor onboarding checklist you can use.
Hiring a vendor that has a poor track record can be risky. You need to evaluate the level of risk a vendor brings along with them. Here’s how you can do so:
All the vendor information should be available for access by some teams, including:
Your vendors should have all the necessary information when they enter into a relationship with a business.
Here’s a list of what you should share with vendors:
Importance of Proof of Address Verification In Vendor Onboarding
Proof of address verification in vendor onboarding is a step that a lot of businesses ignore. Verifying where a business comes from plays an important role in figuring out if they’re genuine or not.
Let’s say there’s a location that’s famous for having risky vendors, or there’s a location that your business doesn’t serve. How would you know the vendor is not from the location?
That’s where online proof of address verification comes in. When you verify a vendor’s proof of address, you can make sure you’re not getting into a relationship with a fake vendor.
DIRO online proof of address verification can help you verify the address of your vendors by verifying the documents provided. DIRO provides 100% accurate results instantly, using proprietary technology.
As businesses globally are understanding the importance of employing additional fraud prevention methods, it has led to a dramatic fall in fraud rates. Handling the aftermath of fraud is becoming super expensive for businesses. This is why the adoption rate of new technologies and compliance rate is improving.
Unfortunately, even after several significant changes in the industry, vendor fraud is a major issue. Fraudsters who aren’t able to break into financial institutions and banks move on to vendor fraud. The reason why vendor fraud is one of the most growing categories is that businesses are highly vulnerable to attacks.
For businesses to identify and prevent vendor fraud, proper knowledge is needed. The more knowledge a business has, the better it can protect itself.
Vendor fraud is basically fraudsters manipulating a business’s payment system. This is done to steal goods and money. In almost all cases, vendor fraud is done with the intent of stealing money.
Any business can be a victim of vendor fraud, but it differs from business to business. Vendor fraud can happen through collisions with third parties. It can also happen because of untrained employees within the organization.
The most common examples of Vendor fraud include:
Businesses that don’t have the right level of security and scrutiny are at the most risk of vendor fraud. Businesses that are small and mid-sized often fall prey to vendor onboarding fraud.
It makes a lot of sense for fraudsters to target small-scale businesses. More than often, small businesses rely on small teams to handle a variety of tasks. This can easily lead to mistakes. A lack of robust checks and no adoption of technology can lead to vendor fraud.
As businesses scale up and comply according to laws and regulation, it helps in preventing fraud. Companies that follow all the compliance guidelines tend to be less open to fraudulent activities due to mistakes. To combat the sophisticated methods used by businesses, fraudsters are also developing new methods.
Vendor fraud is different for every organization. There are multiple categories, that include:
There are some basic rules and regulations every business needs to put in place to prevent vendor fraud.
1. Vendor Controls
Businesses need to set up a checklist outlining all the guidelines for vendor onboarding. Here are some common things you can keep in mind:
2. Employee Measures
A lot of times employees help vendors orchestrate the fraud. To prevent this, businesses should have some guidelines for their employees:
3. Set up Due Diligence Processes
Before you onboard vendors, you need to have a proper due diligence checklist. Having a proper guideline can help newer employees onboard vendors that are legit. As a business, you need to conduct thorough vendor verification. You need to make sure that the mailing addresses are correct. Check if the bank account is legit. Verify if the information and document submitted by them are original and not tampered with.
Conclusion: Vendor Fraud Prevention Guidelines
Vendor fraud can impact your business in a lot of ways. Prevention of vendor fraud requires proper planning and sticking to the plan. Preventive measures should be a priority for most businesses, and they should also focus on technologies that can help make the process easier.
In the public landscape, vendor bank account fraud is growing at an alarming rate. A vendor contacts the accounts team to tell them they haven’t received the payment. The accounts team then checks the data and finds out that they’ve paid the invoices. So, when more due diligence is done, it is found out that the money wasn’t sent to the Vendor’s account but to some other account altogether. What happened was that a fraudster got into the systems and changed the Vendor’s bank account information.
This situation has happened a lot in recent times. Most recently it happened with Scott County Schools where they lost $3.7M. Eventually, they were able to recover the funds. And they decided to put some safeguards to prevent something like this from happening again.
Another similar situation happened in the “City of El Paso, TX” where they uncovered $2.9M, and $300K payments were sent to a fraudster. Unfortunately, they were only able to recover $1.6M and $292K from the payments. To prevent this from happening again, they decided to verify vendor information before every single payment.
Regardless of the fact your company has been in a similar situation or not, there are 4 basic steps you can follow to prevent fraudsters from changing banking information.
The first and foremost thing you should do is to build a banking form for all the vendors. The reason for doing so are:
This is a vital step in preventing vendor bank account fraud. As you confirm a vendor’s Legal Name and Tax ID to match IRS records, you should also confirm the bank account information to match them against your records. Moreover, you can use DIRO’s bank account verification service to make sure the documents provided by your vendor are true.
Once you’ve received the updated form, and confirmed all the data against your records, it’s time to contact the vendor. Call the Vendor to verify the change if there are any. This may seem cumbersome to both parties at first, but the benefits outweigh the pain. There won’t be any payment delays, and you won’t have to try to recover lost money.
While verifying the information, keep in mind that the vendors may not respond right away, so you need to find a way to keep track. If the Vendors don’t respond in time, don’t process the payment.
If there are any changes in the vendor banking information, you should build a system that sends an automatic notification system. Whenever the information is changed, the vendor will receive a notification.
How to Make This Process Efficient?
Building and setting up this process takes up a lot of time. But the process is crucial as it helps vendors and yourself be safe from fraudsters. Implement a vendor self-registration portal for vendors to authenticate themselves and prevent fraud. On the portal, vendors can authenticate themselves and also update their banking information as per their preference.
Merchant onboarding is the key to growth for any kind of business, regardless of the fact if you’re a merchant acquirer, a payment service provider, or anyone else. As a business, you would want to have as many merchants to support more transactions. But, onboarding more merchants without proper due diligence can cause more losses than benefits. Businesses need to follow the best practices in merchant onboarding and monitoring practices.
As a business, how can you balance trade-offs, ensuring that you can quickly and seamlessly onboard merchants that can be trusted? While good merchants can improve your business operations, bad merchants can put you in heaps of trouble.
The global payment market is growing rapidly and changing quickly as the sophistication of both technological and fraudulent attacks is advancing. There are numerous ways businesses can utilize to improve the risk assessment, monitoring, management, and onboarding of merchants.
Before we jump into the methods of merchant onboarding, businesses need to be aware of risk management processes.
The risk management approach for merchant onboarding is vital for learning how to onboard merchants:
As not all merchants are the same, the level of risk and the due diligence checks that you need to do are also different.
It’s true that there are different levels of due diligence for each merchant, but there is a standard that must be met across all the due diligence checks. There are some legal compliances that have to be followed, such as KYC & AML. There are some standard rules of the card networks, they demand that there are specific legal contracts with all merchants that control all the relationships. Other rules regarding credit underwriting, as the merchants have to be in effect by offering unsecured loans.
Onboarding the right merchant can be tough, but with the right steps you can successfully onboard a merchant:
One major factor for creating a more successful onboarding process is blending automation with human effort. Most of the industry runs around manual work such as data entry, which has to be done multiple times. Manual work takes up a lot of time and it has a lot of room for human error. This is why a blend of human error and automation is necessary for detecting and preventing merchant onboarding fraud. Combining human and machine efforts can be considered one of the best practices in merchant onboarding and monitoring.
Automation allows businesses to have a smoother integration between the merchant onboarding steps. With the right technologies, you can make the whole merchant onboarding process automated. Businesses need to understand the importance of best merchant onboarding practices.
Payment service providers and other businesses shouldn’t stop their risk management after they’ve onboarded merchants. What happens when a merchant changes the nature of their business? A change in the risk criteria requires reevaluating the risk profile of the merchant. When a merchant changes their business model, they can be doing damage, so it’s better to reassess the merchant profile:
Here are some of the best merchant monitoring best practices:
For monitoring the merchants, automation has seen some efficiency. The industry is getting tougher to survive in. There’s a lot of competition, encouraging growth in high-risk segments and markets. There is a huge rise in CNP fraud, as counterfeit fraud becomes more difficult.
Vendor onboarding or also known as supplier onboarding is a tricky yet extremely meticulous process. Supplier relationship management is a systematic process that allows businesses and organizations to collect documentation and data to qualify, approve and contact vendors, purchase goods or services and make timely payments to supply partners. Vendor onboarding compliance is tough as numerous steps are involved.
A vendor or a supplier is an entity that sells any specific product or service to your business, either for your business to sell it or as part of an item that you resell. The vendor onboarding process for e-commerce or other businesses is pretty much similar to employee onboarding, in which new members of a business learn about a company’s practices, processes, compliance, expectations, etc. There’s a lot to understand about supplier and vendor onboarding, doing it wrong can open the business to countless frauds.
A proper and flawless vendor onboarding checklist can help your business to avoid hefty mistakes. An improper vendor and supplier onboarding process can lead your organization to legal and compliance risks. There are some best practices that you can follow to bypass the vendor onboarding challenges.
Before onboarding a vendor, your business should list and understand all the local, and global legal and compliance issues that apply to your industry and business. This assists in better vendor onboarding compliances.
Read and understand all the technical challenges of supplier onboarding related to your business type. Education can lead to a better understanding of how to secure your business against supplier and vendor fraud.
Reduce your chances of risk and fraud by pre-qualifying vendors. Prepare a list of vendors based on their track record, willingness, and ability to meet up your organizational needs. This way you won’t be blindsided while onboarding a vendor. Verification can be done using vendor onboarding documents and ID verification solutions.
Each vendor and supplier needs to have different types of contracts. To successfully onboard a vendor, you may want to build additional governance for strategically important suppliers. The best vendor onboarding solutions can help you in verifying your vendors and assist in building contracts.
It is always a good choice to secure your financial information from vendors, suppliers, and other third-party suppliers. You should use the latest technology and other solutions to verify if the vendors are legit and won’t cause any future problems.
Design your vendor onboarding process with global compliance rules in mind and a proper idea of business that aligns with your business needs. Your strategies need to benefit your business and support your financial goals.
Tracking data is always an important part of any onboarding process, be it employee onboarding or vendor onboarding. With constant data analysis, you can learn where to make improvements in your process.
You need to make sure that every member of your team understands the steps of the onboarding process and the software that is used to verify vendor identities and documents.
Provide timelines and make sure your vendors follow through with them. Your team should be able to manage and deliver a plan. Your vendors should be aware of what you’re expecting of them, share this information with your vendors and manage your expectations.
Mistakes that are made during vendor onboarding are typically failures related to accountability, planning, compliance, and training. Now that you know what is vendor onboarding process is, the next step is to save organizations from risks. The best way to avoid mistakes is by following the best practices mentioned above and making sure to not make common mistakes. Avoiding vendor onboarding mistakes can offer great benefits to your company.
Here are all mistakes you need to avoid during the Vendor onboarding process for e-commerce and other industries.
Shifting your procurement and vendor relationships from old processes to a more strategic function offers benefits beyond competitiveness, it also helps in improving efficiency, mitigating risks, better relationships, and a better brand reputation. Here are all the benefits that come along with a proper business onboarding process:
Automation is always good, there are three main components that a business should consider for vendor onboarding:
Your cost for vendor onboarding depends on the size of your business operation and the number of vendors you are currently working with. If you already have good working relations with a variety of vendors then you will need a system that can handle your growing needs.
During the pandemic, the number of onboarding frauds has grown exponentially. According to a report by Bnn Bloomberg, NASA incurred a loss of $700 million due to the supply of faulty aluminum products. To avoid this income and productivity loss, businesses need to use solutions that can help verify vendors during the onboarding process. Vendor onboarding documents and ID verification are crucial for mitigating fraud.
DIRO’s online verification solution can reduce fraud, improve business relations and improve productivity. DIRO’s solution can verify vendor documents in an instant and assist in complying with AML regulations. The output of the solution is a court-admissible document with forensic data and a digital hash that makes the documents immutable. Being able to differentiate between legit and fake vendors during the first part of the onboarding process is something that every business needs.
The finance industry is full of fraud every step of the way, and merchants’ bank account verification and customers are important. Businesses use some common practices to collect and verify bank account details. The method for verification for merchants’ bank accounts differs from business to business. There are multiple ways to verify bank accounts for merchants, here’s how to verify bank accounts for merchants.
Banks & businesses go through countless transactions every day and being able to verify bank information instantly can mitigate the risk of fraud. Each method helps in the merchant funds verification.
One of the simplest methods to collect and complete merchants bank account verification
is to ask the customers or vendors for their bank account information. Without verifying bank information, you are putting your business at unnecessary risk.
You can work without verifying bank account information with trusted identities like law firms. If huge transactions are being made, the ideal choice would be to collect their account information and verify the information.
Before the rise of digital banking technologies and online services, banks used to verify account details by using a voided check. This method of verification for merchants bank accounts used to work in the old days, but not today.
A check has all the information needed to make a payment, such as the “account number, the routing number, and the account holder’s name”. This method used to be very efficient in the old days, but with the rise of new technologies, it has become tedious. A merchant requires you to void a check and scan it. Although with sophisticated image doctoring technologies, the scanned image of the check can be changed. In comparison to that, using micro-deposits for bank verification is a much better solution.
Micro deposit verification is used by multiple banks and businesses to verify a merchant’s or customer’s bank account information. The process of Micro Deposit verification came into existence with the rise of digital banking. This process requires the bank or businesses to be on hold of a customer’s account information.
The businesses will tell the merchants that they’ll send two different transactions to the bank. The accounts will be verified if the merchant can tell the exact figure that was deposited in their accounts. The most common method is to send two different transactions from two different accounts to the merchant’s bank account for double-checking. Micro deposit is a well-known merchant fund verification method.
The newest and the smoothest process is instant account verification for merchants bank account verification. These solutions enable a direct link into the bank and collect and verify bank account ownership.
The benefit of this method of account verification is that it can be done instantly and offers better fraud detection and prevention. This solution is not widely available as the provider doesn’t offer full coverage across all the banks. While IAV is a better solution to verify merchant bank account information, it is not available everywhere and that’s why Micro Deposit verification is still available in the market.
Merchant bank account verification is crucial to reducing financial fraud. Although not all the solutions offer fast, secure, and error-free bank account verification. With technological solutions like DIRO online document verification, verifying bank account holder information can be done in an instant. With secure and innovative technology, DIRO provides 100% proof of authentication that can be used as court-admissible documents with forensic data. Businesses can employ DIRO’s online document verification technology to make the workflow streamlined and eliminate the risk of fraud.