When adding new suppliers to your vendor list, it is important to ensure that they are legitimate businesses to protect your company from fraud. It’s unfortunate, but a fact of business, that diligence in this matter can save your company major hassles later on. Beside the need to protect your company from fraud, you also want to make sure that your end customers get high-quality products or services from your suppliers to maintain the reputation of your brand. In order to significantly lower the chance of working with a fraudulent vendor, there are ten vendor validations you can do before you start working together and during the period of your contract.
1. Research the vendor online
You can start by doing some research of the new vendor online to see if they are legitimate. Look for a website, social media pages and customer reviews to see if they have a presence. While this can still be a fraudulent company, it is still a good place to start. You can check their listed contact information and see if all of the online pages are consistent with each other.
2. Check their physical address
Checking a physical address is an important step to establishing the legitimacy of a company. If they are a manufacturer, then they need to have a plant to manufacture in. While their sales people may travel to meet with you, they require a physical location to conduct business. If necessary, you can travel to meet them at their location before you start doing business.
3. Verify their Tax ID Number with the IRS
Companies that do business within the United States need to have a Tax ID number to report their earnings to the Internal Revenue Service. You can request the TIN from your potential vendor and verify it with the IRS to validate their company.
4. Have them complete a W8 or W9 form
The W8 and W9 forms are forms that are used by the IRS to track the movement of income to suppliers of any company. This goes a step further than the verbal verification of a TIN for any vendor that you work with.
5. Verify phone numbers
Taking the time to call the contact numbers listed for a company may sound logical; however, we have become so used to using email that it can become overlooked. Emails can be generated by automated servers, while real people have to answer the phone.
6. Check the vendor against your existing suppliers
If you are a small company or have a short supplier list, you can do this manually. However, if your vendor list is long, put a practice into place to check all new vendors against your existing list before starting work.
7. Check the vendor against OFAC
If the vendor is from outside the United States, check them with the Office of Foreign Assets Control. This government office manages the list of companies that are restricted or banned from doing business with the U.S.
8. Have your AP Department do a thorough review
Before the vendor begins working with you, have your Accounts Payable department review them thoroughly to ensure that they have the financial backing to provide you with timely shipments of your needed supplies.
9. Check for SOX compliance
The Sarbanes–Oxley Act of 2002 or SOX ensures compliance against fraud through requirements of accountability and responsibility. Primarily aimed at public companies, this law protects against the misconduct of company management.
10. Set up payments through ACH
If you can, setting up payments directly to the company’s bank keeps paper checks out of employee hands which reduce fraud temptation. Additionally, it allows you to verify the company’s bank account.
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