Fraudsters are becoming more sophisticated by the day. Are manufacturers being proactive enough to fight the growing threat of vendor payment fraud?

As artificial intelligence gains traction around the world, so does fraudsters’ ability to pull off advanced schemes. Deepfakes, voice cloning and highly sophisticated phishing attacks are becoming a much bigger threat to manufacturers. Despite the rapid acceleration of cyber fraud risks, nearly half of organizations have no plan to counter those threats. Only 18% of industrial manufacturers say they have comprehensive anti-fraud programs in place. Many don’t take steps to fight fraud early and often enough in the procure-to-pay (P2P) chain.

Incidents of fraud can harm companies’ relationships with suppliers, customers and investors. One of the most important moves manufacturers can make to protect their businesses in 2024 is to strengthen their ability to fight payment fraud throughout the entire procurement process. 

Today, many financial teams at manufacturing companies validate supplier credentials and payment information at the end of the P2P chain, or at the far “right,” just before the payment is sent. While this is a vitally important final step, companies are exposed to fraud much earlier in the procurement process. Organizations are vulnerable when new bank accounts are added to their systems during supplier onboarding. They’re also at risk throughout the supplier lifecycle any time a new invoice is submitted, or modifications are made to existing accounts. In fact, 55% of successful fraud attempts are perpetrated through credential or information changes on legitimate payments.

Fraud prevention can’t be an afterthought. Companies are best served with a strategy that shifts “left,” from the financial team in charge of payments to the procurement team that initiates the supplier relationship.

Seventy percent of companies use manual processes like phone calls or emails to validate supplier credentials before making a payment. Manual processes crack the door wide open to fraud, as it’s easy for fraudsters today to usurp supplier identities and intercept payments. 

Fraudsters can break into a supplier’s email database; watch how employees write emails to buyers, including the tone, language and style they use; and pretend to be the supplier and communicate directly with buyers about a legitimate order and payment. These fraudsters are so sophisticated that it’s impossible for buyers to tell they’re not communicating with a legitimate partner. The supplier’s email address is correct and there are usually no signs that something is off. Procurement and accounts payable teams often don’t bat an eye when the supplier says tit recently changed banks and asks that payment be sent to a different bank account. Calling the supplier to verify the change doesn’t always bring peace of mind, since the fraudster could intercept the call and use voice cloning techniques to impersonate the vendor.

It’s impossible to identify these types of fraud attacks manually, given their sophisticated nature. Fraudsters can infiltrate companies’ systems at any point in the procurement process. Waiting and relying on the time of payment to check for fraud leaves companies exposed, because an illegitimate change made earlier in the process could get carried through and look like valid credentials at the time of payment. Large manufacturers also work with tens of thousands of unique vendors spread out globally, which creates too many points of exposure over the course of suppliers’ lifecycles for any company to successfully stay on top of with manual controls.

Following are some steps that manufacturers can take in 2024 to be more proactive in fighting fraud.

Focus on automating account validations across the P2P chain. Sixty-two percent of manufacturing leaders plan to implement automation into their broader operations. Fraud prevention should get at least that same amount of attention and investment. Technology is an asset for manufacturers in the fight against vendor payment fraud, because it can automatically validate supplier credentials and instantly flag when an account isn’t associated with a legitimate supplier. It checks whether the company and supplier actually exist, that the bank account is legitimate and the number is correct, and that the correlation between company and bank account is valid. And it checks this at different moments of the supplier lifecycle, not just before payment or when a supplier is onboarded. 

Increase reliability of vendor data. In a typical year, manufacturers will see suppliers close their doors, merge, get acquired or go through another type of organizational shift that necessitates a change to their bank account information. It’s incredibly difficult, especially given the sheer number of suppliers the average manufacturer works with, to stay on top of this activity as it happens. This leads to a reliance on inaccurate vendor data. In fact, roughly 30% of existing vendor data in financial systems is outdated.

Automation also plays a role in cleaning vendor data. Technology alerts manufacturers of anomalies and errors in the data, which enables them to focus on closing the information gaps that need the most attention. If something changes in the vendor information, such as a supplier opening a new bank account, manufacturers know immediately, and can confirm that the change is legitimate well before it’s time to pay the supplier. With automatic account validations and continuous data cleaning, manufacturers can “set it and forget it,” and have peace of mind that fraudsters are never left unidentified. 

Improve collaboration across the P2P chain. Finance, treasury, procurement and accounts payable professionals at manufacturing companies all share responsibility for fraud prevention. But today, most of these teams operate in silos, with little to no communication and visibility around payments passing through the P2P chain. The procurement team handles vendor onboarding at the beginning of the supplier relationship, and the AP team pays for the orders. The moments in between these process handoffs can easily be exploited by fraudsters. They could request a change to bank account information right after the accounts payable team takes over, without procurement knowing.

A shift “left” requires teams to collaborate early on and throughout the supplier lifecycle, to make sure they’re all working off valid information. Everyone has visibility into whether changes are legitimate and uses the right credentials moving forward. 

Vendor payment fraud is a growing business problem, and will continue to be one of the biggest risks facing manufacturers. New types of fraud are constantly rising, forcing manufacturers to re-evaluate the way they protect their P2P chains in 2024 and beyond. 

Resolve to make fraud prevention a key part of the procurement process next year. “Shift left” and take steps earlier and more often. Proactivity will go a long way in helping you defend your business against fraud.

Baptiste Collot is co-founder and chief executive officer of Trustpair.