How Can Financial Automation Protect You from Vendor Impersonation

In many organizations, security risks can arise from nearly any digital transaction and communication in today’s ultra-complex world of cybersecurity vulnerabilities.

Hackers and fraudulent entities typically monitor an establishment’s business protocols and patterns and search for vulnerable avenues to target. It’s especially common for bad actors to pursue financial pathways to infiltrate a company. Financial fraud can take many forms and touch almost every department in a company. One of the more common vulnerabilities that have become significantly more prevalent in companies of all sizes is payment fraud arising from vendor impersonation.

As the threat of vendor impersonation continues to rise, and the underlying technology becomes more sophisticated, it’s important to know how to identify these vulnerabilities in your organization and take steps to mitigate them. In this article, you’ll learn about these security risks and how vendor impersonation can harm a company. You’ll also gain insight into technologies that can decrease your security risks, including financial automation tools.

What Is Vendor Impersonation?

Vendor impersonation, in the simplest terms, occurs when a fraudulent actor attempts to impersonate a company with the purpose of defrauding that company’s clients. When a bad actor impersonates a vendor, the goal is to send fraudulent emails to that vendor’s clients in an attempt to update the payment or banking information that the client has on file for paying that vendor’s invoices. As a result, when the legitimate vendor sends genuine invoices to that client in the future, the client’s payments automatically send to the fraudulent account.

In recent years, technology has become increasingly sophisticated to allow fraudulent actors to send emails from fake email addresses that look almost identical to the legitimate email addresses of the same company. In some instances, the addresses cannot be discerned from each other. Called Business Email Compromise (BEC), it developed to become highly advanced.

One highly convincing email that is seemingly sent from an impersonated vendor asking to update the direct payment information that they have on file to a new (fraudulent) account can allow a bad actor to siphon away payments on all future, legitimate invoices that the vendor sends to its client until the fraud is detected.

“While fraudulent email requests appear legitimate and harmless, one malicious email can severely damage the organization if an employee completes a fraudulent request,” said Nasser Chanda, CEO of Paymerang, one of the leading financial automation platforms that helps companies prevent and detect payment fraud.

Vendor impersonation can happen to companies of any size, scope, or specialty. But, small businesses without strong security features will likely fall victim to such threats.

How Does Vendor Impersonation Affect Business Owners?

Vendor impersonation can negatively impact business owners, regardless of their specific industry. But as mentioned, it’s more probable that small companies lacking adequate security controls and anti-fraud measures will fall prey.

Having financial processes that are solely manual for processing invoices and requests from vendors can also create a security vulnerability. Human error can never be fully mitigated by itself. This is why many companies have equipped their finance teams with automated technology. It helps reduce risks of error and detect red flags sooner.

“When the size of a company is considered, smaller businesses appear to be more susceptible to fraud because they lack the employees or resources needed to protect themselves from an attack,” Chanda explains.

How Can Your Company’s Employees End Up Victims of Fraud?

Educating an organization’s finance team on the constantly-evolving threats that exist in the cyber landscape has become a critical part of a company’s financial strategy. Learning about the most common fraud threats and vendor impersonation scenarios and how to spot red flags in emails and other communication is necessary on an ongoing basis. Additionally, it’s imperative for your employees to verify the identities of those they correspond with via email.

The Tools to Protect Your Company from Security Threats and Vendor Impersonation

Basic email security tools are often inadequate in preventing financial fraud. Phishing tools and the like are sometimes evaded by the most sophisticated BEC technology.

Adopting a financial automation platform for managing accounts payable and receivable, invoicing, and fraud detection has become an integral tool for startups and conglomerates alike.

An intrusion detection system will also help detect emails with company names similar to those of your actual vendors in the address. Make sure your staff members know to flag emails in which the “reply” address differs from the original sender’s address.

You should also have two-factor authentication protocols in place when changing vendor payment locations. Likewise, phone verification is critical when confirming requests for fund transfers.

Instruct your staff not to call the phone numbers in the email. Instead, verify vendors using their phone numbers. Essentially, your team must make a habit of reading emails carefully whenever they include any banking information updates or transfer of fund requests.

Financial automation tools can also play a major role in protecting your organization from vendor impersonation.

Can You Recover Lost Funds?

If you believe your company has fallen to a scam like vendor impersonation, make it a point to alert local law enforcement and your bank or other relevant financial institution, as well as the legitimate vendor. Keep in mind, however, that getting the money back may be difficult or impossible.

“Unfortunately, businesses may never be able to recover funds because fraudsters are often untraceable,” Chanda says. “That’s why it’s so important to remain vigilant against fraud.”

Payment and invoice automation tools can help your company avoid falling for scams from vendor impersonators. Or falling for fraudulent fund transfer requests.

Financial automation tools make it possible to pay vendors quickly using a simple automated process. Your staff will become much more discerning of email requests for fund transfers. This is especially true when they know their vendors have a straightforward and secure payment automation system.

Consider implementing financial automation systems to protect your business from fraud and vendor impersonation.