Small manufacturers in the U.S. are facing a unique market climate. According to new reports from Bank of the West, the industry is enjoying growth and financial success, and SME manufacturers are getting smarter about their finances.
But the bank is also pointing to challenges that can hit small manufacturers in the country especially hard – like when it comes to cybersecurity. As SME manufacturers’ wallets get bigger, so do the targets on their back for cyber thieves. With the FBI having just released a new warning about cyber attacks on small businesses, Bank of the West’s report could pose an even louder warning to the nation’s manufacturing sector.
In its recently issued white paper “Made Here – The Business Outlook For U.S. Manufacturing,” the bank showcases how small manufacturers are performing in an overall improved manufacturing market in the nation.
For the strongest players, Bank of the West concluded that their biggest advantage is being situated close to their corporate buyers. “As U.S. consumers and businesses demand more customization and faster delivery, this advantage is likely to intensify,” the report said. Close proximity to customers means SME manufacturers can more adequately manage inventory, reduce delivery times and more easily customize orders – all of which, Bank of the West said, contribute to stronger cash flow.
A separate white paper published last week, however, warns that small manufacturers in the U.S. are particularly susceptible to an array of potentially crippling challenges.
In “Fortifying Your Business: Fraud And Security Measures For U.S. Manufacturers,” author David Pollino, Bank of the West Fraud Prevention Officer, said that payment fraud is emerging as one of the top security schemes to hit SME manufacturers.
According to the report, the crime tactic of masquerading is one of the most common payment schemes. Citing the 2015 AFP Payments Fraud and Control Survey by the Association for Financial Professionals published earlier this year, Bank of the West said that for the third year in a row, three out of five companies became a target of payments fraud this year.
This scheme is nothing new, but it is rising to prominence in the world of cyber crime.
Just this week, the Federal Bureau of Investigation released a new public service announcement over the so-called Business Email Scam, one type of masquerade crime in which a criminal sends a seemingly legitimate email with instructions to pay a fake supplier via an overseas bank account.
According to the bureau, these crimes have caused an estimated $1.2 billion in damages to businesses between October 2013 and August 2015 around the globe. It’s a scam that can cause companies of any size or industry to fall victim. “The BEC scam continues to grow and evolve, and it targets businesses of all sizes,” the FBI warned. “The scam has been reported in all 50 states and in 79 countries. Fraudulent transfers have been reported going to 72 countries; however, the majority of the transfers are going to Asian banks located within China and Hong Kong.”
But according to Bank of the West, small U.S. manufacturers are especially at risk because they are working more often with overseas vendors and business clients, due to recent growth in the nation’s manufacturing sector. Not only are they growing internationally, their financial success creates a larger target on their backs for cyber criminals.
“As small- and medium-size manufacturers expand domestically and internationally – broadening their networks of vendors, business connections and customers – the risk of payments fraud rises,” the paper concluded.
There are four steps to prevent such scams from hitting SME manufacturers, the report finds, that go beyond the often inadequate security measure of receiving a call from a bank’s fraud prevention department.
These include developing an approval process for large transactions, using a purchase order model for wire transfers, confirming and reconfirming transactions, and maintaining communication with banks.
[bctt tweet=”…small businesses are actually victimized more often than any other business size”]
“Business owners often have the misperception that they’re small enough to fly under the radar,” Pollino said in a statement when the report was released last week. “However, the reality is that small businesses are actually victimized more often than any other business size. A single attack can have a substantial and lasting effect on a small business.”
[bctt tweet=”A single attack can have a substantial and lasting effect on a small business.”]
According to Bank of the West, the report follows recent, separate research by the institution that found that security remains a low priority for small business owners. Identifying the masquerading scheme, the bank said, is part of its effort to help small manufacturers decide where to best invest their resources and attention to ensure their business succeeds.