The challenges of mitigating invoice and payment fraud

Sept. 27, 2022
How automation can keep companies safe from organized fraudsters

Invoice and payment fraud has always been a challenge for businesses. But in recent years, it’s a challenge that has become that much more difficult to combat and control.

While compromised business emails cost organizations more than $12 billion between October 2013 and May 2018, the COVID-19 pandemic exacerbated what was already an expensive issue. During the first three months of 2020, for example, instances of invoice and payment fraud increased by more than 75%.

According to the 2022 AFP Payments Fraud and Control Survey, 71% of organizations were victims of payment fraud attacks in 2021. In particular, accounts payable (AP) departments increasingly drew scrutiny from bad actors; 58% of organizations reported that their AP units were targeted by scams.

Keep reading to learn more about what invoice and payment fraud is and how your business can use automation to overcome this challenge, protect your finances, and keep your business partners satisfied.

What is Invoice and Payment Fraud?

Invoice and payment fraud occurs when a bad actor attempts to defraud an organization by sending fake invoices to a company and trying to trick them into paying the bills anyway.

In some instances, the fraudster may pose as a legitimate business supplier by spoofing their email address, adjusting the payment details on an invoice ever so slightly, and sitting back and crossing their fingers until payment is ultimately made. In other cases, a legitimate business might decide to inflate its invoice (e.g., putting an extra zero on a $7,500 invoice) and hope payment is made without anyone noticing.

Unfortunately, businesses often struggle to detect invoice and payment fraud until it’s too late. Many times, they don’t find out they were the victims of a crime until the legitimate business follows up, wondering why it hasn’t received payment yet.

How Can Automating Accounts Payable Protect Your Business Against Fraud?

While invoice and payment fraud may be increasingly common and can be difficult for people to detect during invoice processing, all hope isn’t lost. In fact, by enabling AP automation, you can significantly reduce the likelihood that invoice and payment fraud impacts your operations — or even eliminate it.

With all this in mind, here are three ways AP automation can help you protect your business against invoice and payment fraud:

1. More Controls Over Payments

When you automate accounts payable, you gain considerably more control over payments. As a result, you can ensure that you know who the supplier is and can quickly determine that it is indeed a valid supplier that you’re currently doing business with. At the same time, you can also figure out whether it’s a valid invoice and whether an approved vendor isn’t sending you an erroneous invoice.

Additionally, AP automation enables you to put in controls around invoice approval. In turn, this allows your organization to rest comfortably knowing that approval rules and payment authorization limits on the back end prevent someone from taking advantage of an undefined process. Since invoice fraud usually requires actors on both the inside and outside of an organization, this can help you prevent rogue employees from trying to defraud your company.

With AP automation, it becomes harder for an employee to send a fraudulent payment in the first place, which should help reduce the likelihood of your company becoming a victim of invoice and payment fraud.

2. Digital Invoice Analysis and Supplier Connectivity

When you automate AP, you form a secure digital connection with the suppliers you rely on to fulfill your mission. This connection makes it easy to be confident about who invoices are coming from when they’re due, and whether they match approved purchase orders and quoted prices.

In addition to empowering suppliers to submit invoices securely and easily track their statuses, this digital connection also protects against invoice and payment fraud by preventing rogue employees from creating fake invoices and loading them into the system.

Again, since this type of fraud usually involves someone on the inside, AP automation can remove the possibility that such an individual can conduct these kinds of attacks.

3. Increased Visibility Into Payments

AP automation also gives organizations access to a digital audit trail that helps them figure out who did what and when. If a user in the AP department approves a fraudulent invoice payment, they’re going to get caught. All interested stakeholders can read reports about who initiated payments to a supplier and whether the underlying invoice ever went through the formal approval process.

Simply put, AP automation gives you complete visibility into all aspects of the invoicing process, including which suppliers sent in invoices and which employees participated in the approval and payment process. You’ll always know what happened and how it happened, which should make it easier to crack down on fraud.

Combat Invoice and Payment Fraud with AP Automation

When you’re ready to fortify your AP department with automation technology, you also need to create protocols outlining what the invoice approval process looks like and ensure your team is trained accordingly. Make sure everyone in the AP department knows what happens when an invoice comes in, how to process it, and how to pay it. Tell them that deviating from these protocols can ultimately result in them unknowingly paying a fraudulent invoice.

With proper training in place and an AP automation platform serving as the foundation of your invoice payment process, your organization can significantly reduce its exposure to potential invoice and payment fraud. Plus, you’ll get all the other benefits that come with AP automation, such as happier suppliers, a more productive AP team, and the ability to take advantage of early payment discounts or withhold payment until it’s due to improve cash flow.

With invoice and payment fraud on the rise, organizations need to take proactive steps to secure their systems and reduce their proverbial attack surface. By investing in a modern AP automation platform built for the digital world, those who commit invoice and payment fraud will have no choice but to shift their attention away from you and toward someone else.

About the author: Shan Haq is vice president of corporate strategy and development at Transcepta, the leading cloud-based procure-to-pay platform. Haq is responsible for shaping Transcepta’s strategy for new markets, products and alliances. Through leadership roles in corporate strategy, marketing and product management, he has successfully grown businesses within Microsoft, Deloitte Consulting, and Boeing Space and Technology. Transcepta, based in Aliso Viejo, California, is an intelligent procure-to-pay platform that enables accounts payable and procurement teams to achieve 100% straight-through invoice processing across their supply chains without scanning or OCR imaging.