New vendors and customers bring fraud risks for businesses

A majority of businesses say it's challenging to bring on new vendors or business customers due to concerns over B2B fraud, according to a recent survey.

The report, released recently by the Association of Certified Fraud Examiners and Thomson Reuters, found that 61% of organizations say onboarding a new vendor is moderately or extremely challenging, while 52% say the same about onboarding a new customer. Fewer than one in seven organizations say it's not challenging at all to bring on a new vendor or customers.

"When evaluating and onboarding new business customers and vendors, organizations must consider numerous factors regarding how much risk is involved in this new business relationship," said the report.

The most collected sources of information from businesses as part of the onboarding process are tax ID numbers and ownership information, both of which can help ease organizations' fraud-related concerns. 

Survey respondents cited sanctions as the highest-priority risk factor when risk-ranking a new business customer or vendor. "Being in a high-risk industry or having a history of civil or criminal litigation are also risk factors that are commonly considered a high priority for both customers and vendors," said the report.

More than half of organizations plan to use more artificial intelligence/machine learning as part of their "Know your business" and "Know your vendor" due diligence processes in the coming years.

The researchers also asked the 183 survey respondents about the top reputational risks faced by organizations when onboarding and transacting with business customers and vendors. The top reputational concerns involves controversial business practices such as compliance failures, sanctions violations, questionable sourcing practices, or other ethical concerns, followed by environmental factors.