Accounts Payable (AP) teams have increasingly become targets of payment fraud, as they often still rely on paper and manual processes. Invoices are especially easy to infiltrate, given fraudsters' proficiency with image-altering tools. Do you know what to look for to spot a fraudulent invoice?
What is Invoice Fraud?
Invoice fraud occurs when a bad actor poses as one of your vendors or suppliers (provider of goods and services for your business) in an attempt to have you send money to the bad actor instead of the legitimate vendor or supplier.
There are many varieties of invoice fraud. We cover a few here!
- Alteration of the actual payment details on an invoice
- Sometimes, the fraudster will only change one or two digits, making it more difficult to see a discrepancy.
- Urgent request to change payment details at the last minute
- A fraudster may call in stating they had to change their payment details at the last minute, creating urgency to update the details quickly before the due date and circumventing proper verification.
- Inflated or falsified payment amounts
- Small invoice amounts, or amounts under a certain threshold, are often quickly approved without due diligence. Anticipating these oversights, fraudsters send low-dollar-value invoices to collect small payments undetected for a significant amount of time.
In all these scenarios, the legitimate vendor or supplier never gets paid.
The Cost of Invoice Fraud
The average cost of invoice fraud for mid-market businesses is $280K each year. Can your business afford a hit of this size?
Funds stolen via invoice fraud cannot always be recovered as it depends on the fraud method used and how quickly it is detected.
Additionally, the costs of enlisting a third-party document and identification verifier can be expensive when you calculate implementation, maintenance, and per-item fees. In fact, only 38% of businesses use such tools, with the cost likely being a determining factor.
As mentioned above, in each invoice fraud instance, the vendors and suppliers don’t get paid. So not only do you need to send funds again, but you also risk damaging the relationships you have with these essential providers for your business.
What If You Are a Victim?
If you believe you are a victim of invoice fraud, time is of the essence. The sooner you file a report, the higher your chances of being reimbursed. Invoice fraud is often reported to groups such as the Federal Trade Commission (FTC) and local authorities, but it is essential to research proper procedures before filing any reports.
Spotting a Fraudulent Invoice
Now that we know the basics of invoice fraud, what can be done to help prevent it?
A survey conducted by Eftsure found that 3 in 10 respondents did not know how to spot a fraudulent invoice. Properly training teams in best practices can offer an effective first line of defense. Below, we outline a few tips for identifying fake invoices.
- Look for suspicious information and inconsistencies
- Confirm payment data against previous legitimate invoices
- Contact the vendor directly via phone or other secure channel to confirm validity
- Make sure to validate the person's identity also!
- Set up approval hierarchies, especially for high-amounts
- Validate EVERY invoice, yes, even the small dollar-value ones
- Match data against purchase orders
- Check any URLs and email addresses before paying via a link
Does This Seem Like a Lot to Take On?
It is.
This is especially true when you consider the other fraud types your business must guard against, such as cyberattacks, ACH fraud, imposters and many more.
Give Invoice Verification to REPAY
REPAY takes on the responsibilities of invoice fraud detection, so you don’t have to and at no additional cost.
Our team of dedicated vendor enablement specialists assess every invoice before payment and call each vendor to confirm the validity of payment details, saving you time and costs and reducing sleepless nights.
Let us simplify and secure vendor payments. Contact us to learn more about our payment protection tools.