Financial fraud goes beyond economic losses and reputational damage to your company. It also serves as a tool for money laundering and the financing of illegal activities. An effective way to mitigate these risks? Know Your Supplier (KYS). This process strengthens risk management by enforcing a thorough validation of supplier accounts.

How can you ensure compliance and choose the right third-party validation tool? 

RollingFunds simplifies your KYS compliance by providing continuous monitoring of your suppliers’ data while ensuring adherence to current regulations.

What is Know Your Supplier (KYS)? 

KYS (Know Your Supplier) is a supplier verification process designed to ensure their legitimacy before establishing a business relationship. Initially required for financial institutions, this practice has become a critical standard in the B2B sector.

By implementing an effective KYS process, companies ensure they are working with reliable partners, thereby reducing the risk of fraud and strengthening regulatory compliance.

Know Your Supplier (KYS) and its counterpart, Know Your Customer (KYC), are two key pillars of Anti-Money Laundering (AML) regulations. While they share similar objectives, their application differs based on the business context.

KYS vs. KYC: Understanding the Difference

Although Know Your Customer (KYC) and Know Your Supplier (KYS) share a common goal—verifying third-party identities and preventing risks related to money laundering and terrorist financing—they apply to different entities:

  • KYC (Know Your Customer): Focuses on customers (B2C).
  • KYS (Know Your Supplier): Applies to suppliers and service providers (B2B).

A third process, Know Your Business (KYB), complements these checks by focusing on the structure and legitimacy of business partners.

Why is Know Your Supplier (KYS) Essential? 

KYS is a key component of due diligence procedures, enabling businesses to assess the risks associated with their suppliers. Beyond effective supplier relationship management, it is also a legal requirement, as we will explore further.

Its primary goal is clear: to mitigate financial risks, including:

  • Financial fraud,
  • Money laundering,
  • Tax evasion,
  • Terrorist financing and other illegal activities.

Criminals continuously develop increasingly sophisticated techniques to divert funds. One of the most common fraud schemes is invoice fraud, where scammers impersonate your suppliers and send fake invoices with their own banking details.

They may: 

  • Inflate amounts or charge for non-existent services,
  • Divert payments by hacking a supplier’s email and altering their banking information. 

Poor supplier management exposes businesses to financial losses and operational disruptions. Most fraud cases go undetected, which is why systematic audits of third-party information before making any payments are crucial.

In short, KYS is not just about risk reduction—it also enhances supply chain management and ensures regulatory compliance.

Supplier Onboarding: What the law says

Beyond its commercial benefits, implementing Know Your Supplier (KYS) in supplier risk management is a legal requirement. Failing to comply with these obligations exposes businesses to severe financial and legal sanctions .

Initially, these controls were mainly required for financial institutions and service providers, who had to enforce them on their clients. Today, most businesses are affected and must adhere to these regulations to ensure transparency and compliance.

In short, KYS is much more than a mere formality—it is a critical tool for fraud prevention and effective risk management.

How to implement an Effective Supplier Onboarding Process? 

A thorough supplier validation process relies on the involvement of key strategic teams. Two departments are particularly responsible: 

1.Procurement Department: The First Line of Defense Against Fraud

Responsible for supply management, this department plays a crucial role in supplier oversight. Its key tasks include:

  • Managing purchase orders using specialized software,
  • Negotiating raw material prices,
  • Participating in tenders for goods and services.

As the first point of contact, procurement teams must verify supplier identity and background before granting access to sensitive company information. No invoice should be processed or paid until the KYS validation is complete.

2. Finance Department: Ensuring Compliance and Profitability

The finance department is responsible for establishing internal controls to minimize supplier-related risks. It ensures compliance and transaction security by maintaining strict oversight of supplier accounts.

Integrating finance into procurement strategy helps to: 

  • Optimize profitability,
  • Anticipate and manage supply needs, 
  • Enhance protection against financial and regulatory risks. 

Key Steps to Ensure Compliance with Your Suppliers

Complying with supplier-related regulations requires a methodical approach and rigorous implementation. Here are the essential steps to secure your business relationships and mitigate risks:

1.Define a Supplier code of conduct

Establish a clear framework by identifying the major risks your business faces, such as corruption, money laundering, fraud, etc. This code of conduct should set strict rules that each supplier agrees to follow.

Map and Assess Risks

Conduct a thorough risk analysis, considering: 

  • The nature of your suppliers,
  • The tools and processes used, 
  • The jurisdictions in which you operate.

Assign a risk score to each supplier to quantify their potential impact on your business.

Implement Internal and External Controls

  • External Audit: Engage an independent auditor to identify vulnerabilities and detect potential fraud.
  • Internal Controls: Establish standardized procedures to secure your entire supply chain.

4. Train your teams on risk management

Raise awareness among your employees about fraud threats and best practices for due diligence, especially in international contracts. Cybersecurity training is also critical to anticipate incidents related to data breaches and implement emergency plans.

Establish an Internal Reporting System

Create an anonymous reporting channel that allows employees to report risks without fear of retaliation. This mechanism is particularly important in government organizations and businesses subject to strict transparency obligations.

These steps will help strengthen your company’s protection against fraud and engage your employees in supplier risk management. Continuous improvement is essential to optimize your KYS process. 

Key Steps of the KYS Process

Know Your Supplier (KYS) may vary depending on the complexity of the company, but its principle remains simple: secure your business relationships by assessing supplier risks.

Here are the three essential steps for an effective KYS process:

Verify the legal identity of the supplier.

2. Analyze financial risks (solvency, debts, etc.).

3. Evaluate operational risks related to the business relationship:

  • Identify the ultimate beneficial owners (UBOs). 
  • Verify the commercial partners of your supplier.

Initial validation is not enough: KYS must be regularly updated, especially in case of shareholder changes or significant modifications in the company’s structure.

At RollingFunds, we recommend systematically verifying the banking information of your suppliers. Our solution automates this process, ensuring speed and smoothness. On the other hand, manual management can quickly become time-consuming and error-prone. That’s why adopting dedicated tools is essential to optimize your KYS process and secure your transactions.

Which Tools to Use to Secure Your KYS Process?

Automate Your KYS Controls for Greater Efficiency

Securing and managing your supplier database can be a time-consuming task, requiring significant resources. Fortunately, advanced technological solutions now allow you to optimize your KYS process, thus reducing the risk of fraud and freeing up time for your finance and purchasing teams.

Rather than relying on manual checks, which are often lengthy and prone to errors, automated tools offer real-time analysis and greater accuracy. The result? Your CFO, accountants, and financial managers can focus on strategic, high-value tasks.

RollingFunds: An Effective Solution for KYS

Adopting a solution like RollingFunds guarantees reliable and secure due diligence. 

Our intelligent supplier data management system performs necessary checks that are often difficult to detect manually. Why Choose RollingFunds?

  • Secure your supplier onboarding and minimize risks.
  • Verify the authenticity and ownership of your suppliers’ data.
  • Connect to multiple international databases to validate the identity and background of each supplier.  
  • Automate real-time checks, protecting you from supplier fraud. 
  • Ensure optimal compliance with KYS regulations.