Do you have inefficiencies within your business? If you answered yes, then you also have the risk of fraud. In the UK alone, businesses are estimated to be losing £9 billion each year to invoice-related scams. Here we’ll explore why invoice processing and management pose a challenge and how to protect your business from invoice fraud.
So what makes invoice fraud so difficult to guard against? Invoices are one of the few remaining areas of business administration that is still typically handled with paper-based and manual processes.
A recent global study, commissioned by Webexpenses, found that as much as 76% of employee time is being lost to outdated and unnecessary admin tasks. This includes the processing of invoices.
For most businesses, invoices are received as paper documents sent through the mail or as PDF or Word documents attached to an email. Either way, the information needs to be manually checked, transferred, and processed.
It creates a slow and inefficient process and it’s when Accounts Payable (AP) teams are struggling to cope with paperwork that businesses become most susceptible to this form of fraud.
What is invoice fraud?
Invoice fraud covers a range of different ways that companies can be tricked into transferring money to an illicit bank account for falsified goods or services. The two main methods are:
Change of bank details
Fraudsters identify an existing supplier and send a message requesting that their account details need to be changed or updated. If this request is followed, any subsequent transfers of money to the supplier will be going into the fraudster’s account.
This message requesting this change is liable to have all the hallmarks of genuine communication. For example, correct logo, email address, and all of the formatting and information of a genuine business.
Fraudsters are also liable to identify the typical timing and frequency of supplier invoices so that they can mimic these patterns. It’s information that’s often obtained by hacking company websites and email accounts.
Fraudulent new suppliers
These will attach invoices for products or services which haven’t been provided. A common tactic is to put pressure on a business to process the payment quickly. For example, purporting that the invoice is overdue.
The majority of these fake invoices are auto-generated but use information taken from an email or business website to create authentic and believable invoices that relate to the company being targeted.
Another tactic of this kind of ‘phishing’ email is to trick the recipient into clicking onto an attached file that looks like an invoice but triggers ransomware or a virus.
The volume and frequency of this type of invoice fraud make it something that finance teams have to be constantly vigilant. Along with the risks of transferring money to fraudsters, there’s also the potential impact on your genuine suppliers.
There are many legitimate reasons why account details need to be changed., Depending on the type of business, accounts payable departments are liable to be regularly processing legitimate invoices from new suppliers.
Strategies to reduce the risk of invoice fraud
Automate the invoice process
The amount of time it takes to manually transfer information from invoices and into internal accounting systems stifles the ability to carry out proper checks. By switching to an automated invoice management system, 90% of the manual processing can be eliminated.
Invoice Processing software automates AP with documents being OCR scanned and all of the required information converted into a digital format. It allows real-time checks to be carried out on each invoice - triggering an alert if any discrepancies are found.
Implement purchase orders
A purchase order adds an extra layer of security to the invoice approvals process. It’s an agreement from the buyer to the supplier. Purchase orders establish mutually agreed payments, dates, and a PO number for the requested goods or service.
In the past, the additional paperwork required to handle this prevented many businesses from benefiting from the safeguard. With a cloud-based service, it makes managing purchase order simple. Each invoice automatically being checked for a matching PO code.
Keep track of payments
It’s difficult to spot irregular patterns or payments unless you have an effective way to track invoice activity. Switching to a digital approach makes this much easier, with reporting tools able to instantly access all of the data.
If there is a sudden spike in the number of invoices from a certain supplier or payments for a particular category are continuing to spiral - you need to know about and to make sure costs are legitimate.
Check new suppliers
No matter how small the payment, always check the information that’s contained on an invoice from a new supplier. This doesn’t mean typing the name into a search engine to check they exist, it means carrying out a thorough check of emails, addresses and website links.
If there are any doubts at all, the best way to verify the information is to contact a company in person. The danger is that once you pay one illicit invoice, the fraudster can use it to legitimize future payments.
Use the power of AI
A powerful feature of an automated approach to invoice management is the ability to check for duplicates and any mismatches. For example, any discrepancies between the information on an invoice and the supplier’s verified details.
An automated invoice management system, like Webexpenses Invoice Processing, is able to automatically carry out checks based on details such as email addresses and bank accounts to identify any potential red flags. It helps to identify the kind of discrepancies that are so hard to spot by eye.
Smart authentication protocol
Thanks to technology, you can improve the way that each invoice is checked and approved without the need for a dedicated AP department. An automated system can filter invoices so that they receive the appropriate level of checks.
A system can be set up so that certain categories or invoice amounts can be directed to the appropriate account managers. It will also keep track of exactly who, when and where an invoice has been checked and approved.
So, there you have it. These are our top tips to ensure that your business doesn't fall victim to invoice fraud. If you're interested in finding out more about how our invoicing system works, please feel free to get in contact or book a free demo.