With fraud and theft on the rise, the FBI has reported that since 2014, Business Email Compromise (BEC) and invoice fraud have cost U.S. businesses over $2 billion across all fifty states and 177 countries. Therefore companies must find ways to mitigate the risk of email and invoice fraud before it overwhelms them and incurs even heftier losses in the future.
With rising financial losses at stake, foregoing preventative steps could quickly escalate into an uncontrolled situation for enterprises of all sizes. Businesses in India can access invoice management solutions from providers like KredX to eliminate the possibility of invoice scams. To address this concern, we will discuss 7 best practices to prevent invoice scams in this article. Read more below.
What is Invoice Fraud?
Invoice fraud is a type of financial and business fraud where companies are coerced into paying false invoices related to counterfeit goods, services, or fraudulent services. According to the FBI, it is one of the most common types of scams due to its capacity for high profits and low risk. As a result, victims can suffer from large financial losses, while perpetrators often don’t even need to be physically present at the scene of the crime.
Businesses must maintain vigilance when reviewing invoices and questioning any irregularities to safeguard their interests and prevent this fraud from becoming more widespread.
What causes Invoice Fraud?
Invoice fraud is common and often leads to devastating financial losses for businesses of all sizes. The theft of funds from invoices can be attributed to a variety of factors, including:
- Opportunistic criminals stealing invoice numbers,
- PayPal and other online payment services experiencing malicious activity, and
- Stolen information being put into fraudulent invoices.
Additionally, manual errors in verifying and approving payments can release the money to unauthorised persons when inaccurate data is accidentally used.
Lack of Internal Controls
One of the primary causes of invoice fraud is a lack of internal controls. Internal controls are procedures and policies that are needed to prevent and detect fraud. If a company does not have adequate internal controls, it is more likely to fall victim to invoice fraud.
Invoice manipulation occurs when an employee alters an invoice before it is submitted for payment. For example, an employee may change the quantity or price of goods on an invoice in order to receive a higher commission.
Invoice fraud can also be committed by creating fake invoices. This can be done by using a real company’s logo and contact information or by creating a new company altogether. In addition, fake invoices are often used to purchase goods or services that are then resold at a higher price.
Poor Vendor Management
Another cause of invoice fraud is poor vendor management. If a company does not have a good system in place for managing its vendors, it may be difficult to keep track of invoices and payments. This may create opportunities for employees to commit fraud.
7 Best Practices using Automation to Prevent Invoice Scams
Automation prevents invoice fraud and has many benefits for the operation of businesses, but it also brings vulnerabilities that fraudsters can exploit. In order to protect organisations from fraudulent invoices, it is necessary to use best practices for automation. By following the seven key techniques below that leverage the power of finance automation for B2B, organisations can significantly reduce their risk of falling victim to invoice scams. So, let’s dive deeper to understand why and how these 7 best practices can be used.
1. Comprehensive Automation to Identify Risky Transactions
Automation is proving to be an invaluable tool when it comes to invoicing scams. Providing an effective, comprehensive protection system against fraudulent transactions requires implementing best practices that leverage the power of automation. These practices involve:
- Leveraging existing smart tools such as Artificial Intelligence (AI) and Machine Learning (ML) for thorough checks,
- Tracking trends in order to identify patterns of improper activity, and
- Implementing automated processes for greater accuracy.
A comprehensive B2B cash flow management automation improves efficiency and security, enabling businesses to protect their systems from malicious actors while continuing to provide excellent customer service regardless of their field or industry.
2. Using AI Algorithms to Detect Red Flag Patterns
Tech-savvy companies can use the latest AI algorithms to detect patterns and red flags representing potential fraudulent activity. To make the most of this technology, AI algorithms can be employed to protect businesses from invoice scams. From examining vendor information first-hand to carefully monitoring payment requests, these worthwhile strategies are a starting point for keeping expenses safe and accurate. In addition, leveraging automation tools allows businesses to secure their coffers more efficiently than ever before.
3. Robust Data Security Measures
It is essential that organisations prioritise strengthening their internal security systems in order to protect accounts receivable information from unauthorised access.
- This includes deploying firewalls and other software solutions that monitor online activity and detect intruders.
- Additionally, clear policies should be developed and followed to ensure staff members understand procedures related to exchanging sensitive customer data via email or any other method, including invoices.
- Proactively taking steps such as employee training on cyber security, encryption of emails, and the deployment of dual-factor authorisation are all important parts of an effective strategy for preventing invoice scams.
- Moreover, organisations must ensure that third-party companies hired for services related to invoice payments also implement strong security measures as part of their platform or system.
4. Establishing Internal Policies for Validation
Establishing internal policies for validation is important to reduce the risk of invoice fraud.
- Providing staff with thorough training and guidance on detection and prevention methods can help organisations stay protected.
- Set out validation rules and guidelines regarding how payments should be authorised, what an invoice should look like, or when they need to be addressed, ensuring that set procedures are followed each time.
- Review policies frequently to ensure they are up-to-date with changing legislation or technology and ensure all paid staff members understand them clearly before authorising payments.
Taking these steps of automation cash flow management will help reduce financial risk from invoice scams and increase the security of businesses.
5. Utilising Specialised Software Solutions
Not only do these specialised software programs provide a layer of protection against con artists, but they can also significantly improve business processes and financial management by automating tasks.
- These software solutions help businesses track invoices and payments better and implement fraud-detection measures.
- Specialised software also offers secure cloud storage for documents and records, enabling organisations to quickly spot discrepancies in their invoices so that any inconsistencies can be addressed before any money is disbursed.
Such specialised solutions are essential in order to safeguard companies against common scamming techniques like altering an invoice’s value or creating false billings.
6. Incorporating Real-Time Monitoring Systems
To improve fraud resilience, real-time monitoring systems help companies recognise data patterns of unauthorised transactions, minimise threat exposure and actively detect suspicious activity.
Additionally, real-time monitoring allows businesses to receive near-instant feedback and instant alerts when any transaction deviates from pre-defined risk parameters. This ensures organisations can take swift action against potential invoice fraud that would have otherwise gone unnoticed for weeks or months.
7. Utilise Dual Authentication
Dual authentication is one of the best preventative measures against invoice scams. In dual authentication, any transaction must be approved by two people in order to go through.
For example, if an invoice for payment needs to be authorised and sent, two people will separately review the invoice, and each needs to give authorisation before the payment can be sent out.
This added layer of security guards against hackers who are attempting to scam honest businesses by sending and authorising fraudulent invoices. Since an employee cannot approve anything on their own, even a malicious or confused employee cannot unintentionally commit a scam.
KredX Can Save Business From Invoice Scams
Invoicing scams are becoming alarmingly common, posing a huge financial and reputational risk to businesses of all sizes. That’s why staying on top of the latest knowledge and best practices for protecting the business is so important. This post discussed the 7 Best Practices To Prevent Invoice Scams, covering an array of strategies, such as fraud checking systems and invoice financing – providing readers with something they can use immediately.
By using B2B automation for cash management systems, businesses can now stay up-to-date with the invoicing security landscape to ensure the business doesn’t fall victim to fraudsters. At KredX, we have the exact tools companies need to confidently manage invoices, allowing one peace of mind that their finances are protected from potential scams.