Invoice Fraud: How to Safeguard Your Business and Prevent Attacks

Invoice fraud is a deceptive practice in which fraudsters manipulate payment requests and invoices to steal sensitive information from a company. It usually involves sending fake invoices or payment requests, which look legitimate. Upon paying these said invoices by their preferred method, scammers can gain access to your payment details.

Invoice fraud is a growing problem for businesses of all sizes. In 2022, the Association of Certified Fraud Examiners (ACFE) estimated that invoice fraud cost businesses over $2.4 billion. 

Understanding Invoice Fraud

There are many different ways that invoice fraud can be committed. Some common schemes include:

Creating fake invoices

Fraudsters may create fake invoices that look like they were sent from legitimate vendors. These invoices may contain typos, grammatical errors, or other red flags, but they may also be very convincing.

Unauthorized modification of invoices

In some cases, fraudsters may make unauthorized modifications to genuine invoices from legitimate vendors. They may alter due amounts, or payment details on the invoice.

Changing payment information

Fraudsters may intercept legitimate invoices and change the payment information to their account. This can be done by hacking into your accounts payable system, or by simply sending you a fraudulent invoice that looks like it came from your vendor.

Overbilling

Fraudsters may bill you for more than you owe them. This can be done by inflating the price of goods or services, or by adding unauthorized charges.

Internal Frauds

Internal frauds occur when an employee or other stakeholder within your organization misuses their position to launder money. They can do this by either redirecting vendor payments into a third-party account, or misusing payment information or misuse checks kept in storage to remove money from your bank account. 

Compromised emails

Hackers may gain access to your emails and manipulate email threads. This can occur with a hack either at your vendor’s end or your employee’s end. The hackers can then replace the vendor’s bank account information with their bank account. As a result, the AP team may unknowingly end up making payments for fraudulent invoices. 

Best Practices for Safeguarding Against Invoice Fraud

Invoice fraud can have a significant impact on your business. It can lead to financial losses, damaged relationships with vendors, and even legal hassles. There are several steps you can take to safeguard your business from invoice fraud. These include:

Invoice reconciliation

Matching every invoice to a purchase order and a goods/service receipt facilitates fraud prevention. This helps ensure that you are simply paying for goods or offerings which you have acquired, and prevent any overpayment or paying invoices with uncontracted rates.

Using fraud detection software

Several software solutions let you discover fraudulent invoices. These solutions normally use a combination of rule-based and machine-learning algorithms to make you aware of suspicious invoices.

Training employees

Your employees need to be aware of the indications of fraudulent invoices. They need to gain knowledge to look for typos, grammatical errors, and other red flags. They must additionally be taught to verify the authenticity of invoices before they are paid.

Establish frequent contact with vendors

Having regular contact with your vendor lets you verify any payment information or price change. This is specifically crucial for paper invoices, where it assists you to discover when an invoice has been tampered with, and take necessary movement. 

Implementing sturdy security features

You must implement strong safety features to guard your accounts payable software from hacking. This includes the usage of sturdy passwords, firewalls, and antivirus software programs.

How To Protect Yourself Against Invoice Fraud

Here are some additional tips to help you prevent invoice fraud:

• Review all invoices carefully. Don't just pay an invoice because it looks legitimate. Take the time to review it carefully and make sure that all of the information is correct. Regularly conduct audits on invoices and compare invoices against support documents like contracts, purchase orders etc.
• Be suspicious of invoices that are out of the ordinary. If you receive an invoice for a large amount of money, or if the invoice is for goods or services that you didn't order, ensure you verify the legitimacy of the vendor and perform sufficient due diligence before making any payment.
• Contact your vendors directly to verify invoices. If you're not sure whether an invoice is legitimate, contact your vendor directly to verify the authenticity of the invoice.
• Use a fraud prevention service. Many fraud prevention services that can help you to identify and prevent fraudulent invoices.
• Approving invoices. With structured approval process, one before payment and one after invoice receipt, you can prevent internal fraud within your company. 

How ClearTech Can Help

ClearTech’s AP automation software comes with multiple benefits to safeguard you against invoice frauds, both internal and external. With ClearTech, you can safeguard your business while streamlining your AP processes. Here are some ways in which it can help: 

• Verifying the accuracy and information of the invoice. With vendor invoice history along with each invoice received, you can easily check to see if you’ve received an invoice from this vendor earlier or whether there has been a sudden spike in the vendor’s invoice compared to the historical trend. 
• Committing fewer manual errors. With a near-100% accurate invoice digitization process, you can prevent manual errors and in turn, avoid overpaying your vendors. 
• Having a complete AP trail. Using ClearTech creates a paper trail of all invoices received by the AP team. This can help identify any discrepancies and quickly resolve any issues. 
• Identifying duplicate invoices. ClearTech also identifies potential duplicate invoices based on dates and amounts. This can help you prevent making duplicate payments to the vendors in case multiple invoices are sent by the vendor mistakenly or with malicious intent.