The issue
Whether it’s buying stock, paying for overheads, or spending on marketing and advertising, managing your suppliers is crucial for the successful running of your business.
But purchasing goods or services could put your business at risk if you don’t take precautions when choosing suppliers. There are many dishonest companies and fraudsters pretending to be trusted businesses, who will seek to steal your money if there is an opportunity. For example, it’s estimated that as many as 675,000 businesses have fallen victim to a fake invoice fraud at some point in their trading history.
To ensure you don’t lose out, you need to know how to be fully in control of managing your suppliers. To spot the risks, it makes good business sense to make sure you really know who you’re dealing with.
The threats
Fraud in your supply chain can manifest itself in many ways: it could be that a fraudster disguises themselves as a known supplier and deceives you into redirecting a regular payment, or that a supplier you have used for a number of years starts to intentionally overcharge you (possibly with the collusion of one of your employees). Either way, you could be left out of pocket if you aren’t vigilant when it comes to dealing with your suppliers.
Here are some specific examples of how your suppliers – or people pretending to be them – could target you.
- Mandate fraud/fake invoice scams
- Advance fee fraud
- Computer software service fraud
- Procurement/purchasing fraud
- Fraudulent trading (insolvent suppliers)
- Business directory fraud
- Office supply scams
Self protect
Taking some straightforward steps to verify that your suppliers are who they say they are this can go a long way towards mitigating the risks.
Do your research
You can find out a lot about your supplier’s reputation just by searching the internet – a good tip is to search the supplier’s name with keywords such as ‘scam’, ‘complaints’ or ‘fraud’ to see if they have been accused of any wrongdoing before.
You can also check to see whether their Companies House records are consistent with what you’ve been told, pay for a credit reference agency to undertake a credit check on them, or ask for references from industry contacts. Ultimately, you must use your business sense in this area to find out everything you can about your supplier before proceeding. If anything about the business or transaction appears suspicious, then proceed with caution or not at all.
Check your ‘supplier’ is who they say they are
Fraudsters can trick you into losing money by pretending to represent a more established business, so checking details and information are also important to be sure that your ‘supplier’ really is who they say they are. One common scam is for a fraudster to assume the identity of a known supplier and request that regular payments be diverted into a different bank account.
As simple as this scam sounds, many businesses fall victim to it as the fraudsters are very good at building relationships before they strike (sometimes over many months). An easy measure you can take to avoid falling victim is to establish a single point of contact (SPOC) with each of your regular suppliers. Do this by contacting your supplier through their verified company switchboard and then run any change requests past your SPOC.
Check you’re getting what you pay for
Unscrupulous suppliers have been known to overcharge for goods and services, or even submit invoices for goods and services that haven’t been provided at all.
To make sure your business is getting a fair deal, try to think about how you can introduce processes to verify as much as possible that what you pay for matches what has been provided. This type of fraud can also involve a supplier colluding with one of your staff members, so it’s important to know your employees to reduce any internal risks as well.
Keep checking again
Just because your relationships with suppliers begin with the best intentions does not mean that they cannot become risky over time.
Try to monitor supplier behaviour and performance – if their service standards begin to slip, it could be a sign that the supplier is under financial pressure. If they were ultimately to become insolvent, a supplier could commit fraud by taking an order from your business that it knows it will not be able to honour, ultimately leaving you out of pocket. To check the financial health of a supplier, you can use the services of a credit reference agency (for a fee).
The Fraud Advisory Panel has published a helpful fact sheet on how you can spot the potential risks and what you can do about them.