The Tariff Impact on Your Vendor Process

Tariffs are reshaping global trade, forcing companies to review their sourcing strategy and the vendors they use, which inherently elevates fraud risks. This environment provides opportunities for fraudsters to exploit an already fraud prone vendor process.  Understanding how tariffs impact the vendor process and preparing for the potential increase for fraud, is essential for vendor teams. 

What Are Tariffs and How Do They Impact The Vendor Process?

Tariffs are taxes imposed by governments on imported goods, often to protect domestic industries or respond to trade disputes. While importers initially pay these taxes at customs, the financial burden is ultimately borne by businesses and consumers through higher costs. Service-based vendors may also face increased costs if their work depends on these imported goods. Any rise in costs from your existing vendors may result in changing who your company does business with – leading to a requirement to create a new vendor.  For those vendors that do not raise costs to your company due to relocating their operations to a country with low or no tariffs or a related change to reduce or avoid tariffs, it will trigger the need to change an existing vendor. With the ability for tariffs to change on a frequent basis, these activities can happen quickly.

Fraudsters are aware of this strategy shift and will take advantage by trying to get set up in your vendor master file, or trying to update remittance details for existing vendors. 

Tariff Impacts On the Vendor Process:  Minimize Potential Fraud

1. New Vendors In New Countries: Your company may choose to do business with vendors in non-tariff or low-tariff countries. Each country can have unique registration numbers, bank details, address formats and more – each with validations that may have not been performed in the past. 

Minimize potential fraud: 

• Each time there is a vendor located in a new country, research and identify validations that are requirement to be performed.  Document the validation resources in your procedures.  This helps to avoid fraudsters from getting set up in your vendor master file.
• Since your company has switched vendors, no future transactions should be allowed.  Inactivate the vendor that this new vendor replaces after all activity is completed (invoices paid, etc).  This helps to avoid paying fake invoices sent by fraudsters.

2. Existing Vendor Changes:  For vendors that responded to tariffs by relocating their operations or banking relationships to reduce the impact, changes will need to be made to their existing vendor record.  There is a high fraud risk related to changes to vendor data, especially involving remittance data. 

Minimize potential fraud:

• Add additional controls for changes to the vendor record that include remittance details or the contact information to the vendors.  Are you currently making a confirmation call for remittance changes?  Fraudsters know that and have evolved.  They will send a change of contact information before they send a change request for banking details or a remittance address, so that you call them instead of the vendor.  Deter fraudsters by developing a requirement on your forms for “existing information to change information” for these critical fields
  • Remittance Address for Check Payments and Banking Details for Electronic Payments
  • Contact Information:  Contact Name, Email Address and Telephone Number
• Perform the same validations for new vendors. Validate that the new information is valid before adding it to the vendor master file. Even for vendor information that is not changing, perform validations to ensure that the information has not changed.
• Check for re-negotiated payment terms. If your company determines a vendor will not be replaced despite tariffs, this could be because they have re-negotiated more favorable payment terms.  Even under normal circumstances, changes in payments terms are not always communicated in a timely manner or at all.  For purchase order/contract vendors, reach out to the appropriate team members and discuss how the vendor team can be notified when updates occur. 

3. Urgent Vendor Requests: For both new vendors and existing vendor changes, there may be a sense of urgency to lessen the impact on the shipment of goods or the timing of services performed.  Fraudsters exploit a sense of urgency and if your internal team members do as well, it can make it harder to flag a fraudulent request or may flag a legitimate request as fraudulent in error.

Minimize potential fraud:

• Resist the pushback from performing all required validations.  Yes, performing validations can (and should) take additional time, however, validations and any other steps are put into place to avoid fraud, fines and bad vendor data.
• If it is truly urgent, move the request up in the queue and process it ahead of the other requests, while still performing the required validations.

Conclusion

Tariffs are reshaping global trade, leading to increased fraud risks as companies implement strategies to adjust their supply chain. To minimize potential fraud, it is essential to perform validations for new vendors, add controls for changes to vendor records, and plan for handling urgent requests.

Want More Tariff Impacts?  Join us at the IOFM Fall Conference > Opening Panel | Strategies from the Cash Flow Frontlines: AP & AR Responses to Tariffs and Other Risk Factors

Sources

Plante Moran, Untangling Tariff Impact: Actions To Navigate Evolving U.S. Tariff And Trade Policies

Plante Moran, How Tariffs Impact Business Operations