In today’s fast-paced business environment, working with vendors is a regular part of procurement, administration, and facility management. But with increasing digital transactions, third-party outsourcing, and complex supply chains, the threat of fake or fraudulent vendors has also grown significantly. Falling victim to a fake vendor can result in financial loss, legal issues, data leaks, and damage to reputation.
In this blog, we’ll help you understand how to identify fake vendors, the red flags to watch out for, and best practices to safeguard your organization.
What is a Fake Vendor?
A fake vendor is an individual or company posing as a legitimate business entity with the intent to defraud organizations. Their tactics can include:
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Sending fake invoices
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Delivering low-quality or no products
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Disappearing after receiving an advance payment
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Stealing confidential information
These vendors may even clone real companies’ identities, create fake websites, or use forged documents to appear genuine.
Risks of Dealing with Fake Vendors
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💸 Financial Loss: Payments made for non-existent or substandard goods.
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🔐 Data Breach: Leaking of internal procurement or financial data.
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📉 Operational Delays: Delays in projects due to undelivered supplies or services.
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⚖️ Legal Trouble: Issues related to contracts, taxes, and compliance.
1. Red Flags of a Fake Vendor
1️⃣ No Proper Registration or GSTIN
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Genuine vendors should have valid business registration numbers, such as GSTIN, Udyam Registration, or MSME certificate in India.
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Cross-verify GST details at: https://www.gst.gov.in/
2️⃣ No Physical Address or Fake Office Location
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Fake vendors often operate without a verifiable physical address.
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Always verify their office location via Google Maps or a site visit if necessary.
3️⃣ No Digital Footprint
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Lack of a website, LinkedIn profile, or social media presence can be suspicious.
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Most legitimate businesses have at least a basic online presence.
4️⃣ Unprofessional Communication
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Use of free email domains (e.g., Gmail, Yahoo) instead of a company domain.
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Poor grammar, spelling mistakes, and urgency in email tone.
5️⃣ Pricing Too Good to Be True
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Offering rates that are significantly lower than market standards could be bait.
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Watch out for "unbelievable discounts" on large or bulk orders.
6️⃣ Requesting Advance Payments Aggressively
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Pushing for full payment or large advances upfront without clear terms.
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Reputable vendors usually offer milestone or post-delivery payment options.
2. Steps to Identify Fake Vendors
🔎 Step 1: Vendor Background Verification
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Ask for PAN card, GST certificate, MSME/Udyam registration, and bank details.
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Verify PAN and GST on official government portals.
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Call their customer service number and verify it on Truecaller or similar apps.
🗃️ Step 2: Check Business References
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Ask for client references or past work samples.
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Speak directly with those references to check credibility.
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Look for their track record with reputed companies.
🧾 Step 3: Insist on Legal Documents
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Request for documents like:
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Company incorporation certificate
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Trade license
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MSME/Udyam Registration
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Cancelled cheque (for bank verification)
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Fake vendors usually hesitate or delay sharing documents.
🌐 Step 4: Visit Website & Social Media
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Visit their official website and verify:
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Company address
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Contact details
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Portfolio
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Client logos and testimonials
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Check domain registration age on whois.com
📲 Step 5: Conduct a Physical Visit (if possible)
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If it's a high-value vendor, conduct an on-site audit or inspection.
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This helps validate whether the office, warehouse, or workshop exists.
🔐 Step 6: Do a Google Search
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Search vendor name along with terms like:
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“Fraud”
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“Scam”
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“Complaint”
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Check forums, consumer complaint boards, and review sites.
3. Best Practices for Vendor Management
✔️ Onboarding Checklist
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Create a standard vendor onboarding form.
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Use tools like Zoho Creator, Microsoft Forms, or Google Forms to streamline data collection.
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Verify every field submitted before approval.
✔️ Approval Workflow
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Route vendor approvals through Admin, Procurement, and Finance.
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Use ERP or software like SAP, Tally, or Zoho Books for vendor creation.
✔️ Trial Order First
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Place a low-value order initially.
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Check the quality of goods, delivery time, and invoice accuracy.
✔️ Bank Verification
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Match the vendor’s account name, IFSC, and GST name to detect mismatches.
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Avoid making payments into personal accounts.
✔️ Use Vendor Rating System
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Maintain a vendor scorecard including:
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Quality of service
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Delivery punctuality
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Responsiveness
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Documentation compliance
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4. Government Guidelines & Legal Support (India)
📘 MCA (Ministry of Corporate Affairs)
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Check company status at: https://www.mca.gov.in/
📘 GST Portal
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Verify GSTIN: https://www.gst.gov.in/search-taxpayer
📘 Udyam Portal
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MSME verification: https://udyamregistration.gov.in
🧾 Legal Measures
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Use NDA (Non-Disclosure Agreements) with vendors.
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Have a vendor contract mentioning:
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Deliverables
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Penalty clauses
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Payment terms
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Warranty or service period
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File fraud cases under:
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IPC Section 420 (Cheating)
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IT Act (for cyber fraud)
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Consumer Protection Act
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Real-Life Case Study (Example)
Company A ordered 500 laptops at a discounted rate from an unknown vendor discovered on LinkedIn. The vendor demanded 100% advance and provided fake courier tracking. After payment, all contact was lost. The vendor website was later found to be fake. The company lost ₹30 lakhs and had to involve the cybercrime department.
Tips From Our Side
Fake vendors can be surprisingly sophisticated. But with due diligence, strong processes, and verification protocols, you can avoid costly mistakes. Always remember:
“Trust, but verify.”
If a deal seems too good to be true, it probably is.