How to Vet Suppliers and Avoid Fake Vendor Scams

Fake vendor scams target small business owners who don’t have the time or resources to double-check every transaction. Scammers pretend to be legitimate suppliers, sending fake invoices, stealing your payment details, or delivering poor-quality (or no) products.

If you’re not careful, a single fake vendor scam can drain your business financially and damage your reputation. In this guide, we’ll walk you through simple steps to vet suppliers and protect your business from fraud.

What Are Fake Vendor Scams?

Fake supplier scams happen when fraudsters pose as real vendors, tricking businesses into paying for fake or non-existent goods and services. These scams can take different forms, including:

Fake invoices – You receive an invoice from a company that looks legitimate, but you never ordered anything from them.

Impersonation scams – A scammer pretends to be your current supplier and asks you to update your payment details (redirecting your money to their account).

Bogus suppliers – A fake company offers amazing deals, takes your payment and disappears.
Low-quality goods – A supplier delivers items that are defective, low-quality, or completely different from what was promised.

Real-life story: Farmer Loses Thousands to Fake Supplier Scam

Alan Steven, a farmer in Fife, Scotland, never suspected anything was wrong when he received invoices from his regular suppliers. They looked identical to the ones he usually paid—except for one small but crucial difference: the bank details had been changed.

Without realizing it, Alan paid £12,000 to a building contractor and £16,000 to a grain merchant—money that actually went straight into scammers’ accounts. It wasn’t until a genuine supplier chased him for payment that he realized he had been scammed.

Hackers had infiltrated Alan’s email, intercepted real invoices, and replaced the bank details with their own. Like many small business owners, Alan was juggling farm work with administrative tasks and didn’t notice the subtle change. “We’re not office people,” he admitted. “I needed to pay some bills and get the work done.”

Although his bank and insurance recovered some of the funds, he still lost £16,000—money he’ll never see again. “It was like losing a year’s wages,” he said, devastated. “You can’t just forget about it.”

Alan’s experience is far from unique. Invoice fraud is a growing threat, with businesses losing nearly £50 million last year alone—most scams start with a simple email.

Source: bbc.com

How to Spot Vendor Fraud: Red Flags to Watch For

Here are key warning signs to help you identify scams:

Suspiciously low prices – If a supplier’s prices seem unrealistically cheap compared to industry standards, be cautious. Fraudsters often use enticing deals to lure businesses in.
Invoice irregularities – Pay close attention to invoices. Duplicate invoice numbers, inconsistent formatting, or missing details can indicate fraud.
Use of generic templates – Be wary of invoices created with standard Excel templates rather than professional invoicing systems. Scammers often use easily editable templates to generate fake bills.
Missing tax identification details – Legitimate vendors should have a registered tax identification number. If a supplier avoids sharing this information, it’s a red flag.
P.O. box addresses – Be cautious if a supplier only provides a P.O. box instead of a physical business address. Fraudulent vendors often use these to avoid detection.

How to Vet Suppliers Before Doing Business

1. Check Their Business Legitimacy

Before placing an order or signing a contract, research the supplier’s background.

Look up their website and contact details. Legitimate suppliers have a professional website with clear contact information. Be wary of businesses that only provide a mobile number or free email address (e.g., Gmail, Yahoo).
Verify their business registration. Check if the company is officially registered. Depending on your country, you can use online government databases to confirm their business license.
Search for reviews and complaints. Look for reviews on Google, Trustpilot, or industry forums. If there are too many negative reviews or no reviews at all, proceed with caution.
Check their address. A quick Google Maps search can help verify if the company operates from a real business location. Be suspicious if the address leads to a residential area or an empty lot.

2. Contact the Supplier Directly

Call their official number. Scammers often use fake websites with stolen company names. If you find a supplier online, call them to confirm they are real.
Verify employee details. If a sales representative contacts you, check their LinkedIn profile or ask for a company email address. Be cautious if they only communicate via messaging apps.
Ask for references. A trustworthy supplier should be able to provide references from other businesses they work with. Contact these references to ask about their experience.

3. Be Wary of Unusual Payment Requests

Scammers often ask for unusual payment methods that make it hard to track or recover your money.

Avoid suppliers that demand:

Upfront payments with no contract or invoice.
Wire transfers to personal bank accounts.
Payments via cryptocurrency or gift cards.

Use secure payment methods like business credit cards or escrow services that protect you in case of fraud.

4. Watch for Red Flags in Communication

Fake suppliers often make mistakes that can give them away.

Warning signs to watch for:

Poorly written emails with spelling mistakes.
Urgent or pushy sales tactics. Scammers try to rush you into making a quick decision.
Email addresses that don’t match the company domain. (e.g., an email from @gmail.com instead of @realsupplier.com)

5. Confirm Bank Account Details Before Making a Payment

If a supplier asks you to change payment details, verify with them directly using a known phone number (not the one provided in the email). Business email compromise (BEC) scams often involve fraudsters hacking supplier emails to change payment details.

6. Use Vendor Management Tools

If you work with multiple suppliers, consider using vendor verification software or services that track supplier reputation, confirm business credentials, and detect fraud risks. A structured vendor management system helps keep track of suppliers, verify legitimacy, and reduce fraud risks.

How to Protect Your Business from Fake Supplier Scams

Preventing fake supplier scams starts with strong security measures and clear processes for managing vendors. Here’s how to reduce the risk of fraud:

Train employees to recognize fraud – Educate your team on spotting fake invoices, phishing emails, and payment scams.
Verify every invoice – Always cross-check invoices with purchase orders before making payments.
Monitor transactions – Regularly review bank statements for unauthorized payments.
Use email security tools to protect against phishing, impersonation, and fake invoice scams that may trick you or your employees into transferring money to fraudsters. Cybercriminals often craft emails that mimic trusted suppliers, leading businesses to mistakenly send funds to fraudulent accounts. Bitdefender Ultimate Small Business Security offers advanced scam detection and email protection features that can help block these attacks before they reach your inbox.

Stay protected and keep your business finances secure.

Check out our plans for small businesses.

FAQs

How can I verify if a supplier is legitimate?

Check the supplier’s business registration, reviews, and contact details. Verify their tax identification number and confirm their physical address. If possible, call them directly using the contact details from their official website.

What are common red flags of fake vendor fraud?

Watch out for unusually low prices, duplicate invoices, missing tax details, P.O. box addresses instead of business locations, and payment requests to personal accounts. Scammers often use urgent or pushy tactics to rush payments.

How can I protect my business from invoice scams?

Use a multi-level invoice approval process, verify payment details with trusted contacts, and implement email security tools to block phishing attempts. Regular vendor audits and invoice matching can also help detect fraud before payments are made.

I paid a fake supplier—what can I do now?

Act quickly by contacting your bank to report the fraud and request a chargeback or reversal if possible. Alert your accounting team to stop any further payments and review other transactions for suspicious activity. If the scam involved a hacked email or fake invoice, report it to Action Fraud (UK), the FTC (US), or your local fraud authority. Strengthen your security by enabling email protection and training employees to recognize supplier fraud.