Invoice fraud has become a growing concern for businesses worldwide. With the alarming 75% increase in invoice and payment request fraud over the last three years, businesses are faced with significant financial losses.
This rise in fraudulent activity serves as a reminder of how easily a business can become a target. The reality is that with so many documents to handle and payments to process, it can be overwhelming to check each invoice for fraudulent activity.
Unfortunately, a mistake could potentially result in financial loss. Therefore, it’s important for businesses to implement preventative measures to avoid invoice fraud and safeguard their finances.
Let’s explore several ways companies can safeguard themselves against invoice fraud.
What Is Invoice Fraud?
Invoice fraud is a form of deception in which false invoices are submitted to collect payment for goods or services that were never received. In addition to submitting fake invoices, fraudsters may alter existing invoices with inflated prices, fictitious costs, and other discrepancies.
This type of fraud primarily affects businesses that require customers to pay in advance or rely on invoicing as a primary source of revenue. In such cases, the loss can be significant if the fraudulent activity is not detected and addressed quickly.
Types of Invoice Fraud
There are several types of invoice fraud. Below are some of the most common:
- Fake invoices: Fake invoices typically involve creating and sending an invoice for goods or services which were never received or provided.
- Duplicate invoices: This type of fraud involves submitting duplicate invoices for payment, often using different customer or vendor information.
- Altered invoices: Altering an existing invoice is another common type of fraud. Fraudsters may change the price, quantity, payment terms, etc., to increase their profits illegally.
- Ghost vendors: This type of scam involves creating a false business entity that exists only on paper and submitting invoices for payment.
- Overbilling fraud: With this type of fraud, fraudulent actors increase the prices on existing invoices to receive a larger than normal payment.
How To Detect Invoice Fraud
Businesses can take several proactive steps to detect and address invoice fraud.
The first step is to establish a system of checks and balances. This includes establishing regular audit procedures to review invoices, verifying the authenticity of vendors, and monitoring customer payment activity. Businesses should also check for discrepancies in billing amounts, such as sudden increases or decreases, as well as inconsistencies in customer or vendor information.
In addition to manual checks, businesses can also incorporate automated systems such as invoice matching software and fraud detection tools that flag suspicious activity. These systems utilize algorithms to analyze invoices for anomalies, identify patterns of fraudulent behavior, and help detect any potential attempts at invoice fraud.
Businesses should also ensure that their employees are aware of the various types of invoice fraud. Regular training and education can help ensure that employees know how to recognize fraudulent activity and understand proper procedures for handling such cases.
By implementing these proactive measures, businesses can significantly reduce the risk of falling victim to invoice fraud.
How Can Invoice Fraud Be Prevented?
The best way to protect against invoice fraud is to implement preventive measures. Companies should use strict internal controls and create policies that ensure all invoices are thoroughly reviewed, verified, and approved before any payments are made.
Here Are 5 Ways Companies Can Prevent Invoice Fraud:
1. Establish clear policies and procedures to review invoices
This includes requiring multiple levels of approval, such as from the accounts payable department and the finance department.
2. Establish a system of checks and balances to verify vendors
This should include conducting due diligence on all new vendors and regularly monitoring existing vendors for any red flags or discrepancies.
3. Use automated systems such as invoice matching software and fraud detection tools to flag suspicious activity.
This can help detect any fraudulent activity and prevent payments to illegitimate vendors. Take Decision Engines’ ContractIQ solutions for example, our AI-powered contract and invoice analytics platform can help businesses reduce the risk of fraudulent activity by quickly flagging unauthorized payments.
4. Monitor customer payment activity for inconsistencies or patterns of fraud
Businesses should review customer payment histories and bank statements on a regular basis to ensure that all payments are legitimate.
5. Educate employees on invoice fraud awareness and prevention methods
Employees should be trained on how to recognize fraudulent activity, as well as the proper procedures for handling such cases.
How AP Automation Reduces Invoice Fraud
To minimize the chances of invoice fraud, investing in an AP automation and payment system with dual payment controls is essential. The automated process allows invoices for specific items or above a certain value to be quickly sent out for authorization by designated individuals before any kind of processing can occur.
Through this safety measure, businesses are able to drastically reduce their vulnerability to fraudulent activity and significantly bolster their security protocols. Additionally, the automation of manual processes also helps to increase efficiency and reduce costs.
How Decision Engines’ InvoiceIQ Solution Can Help
Decision Engines’ InvoiceIQ is an advanced and end-to-end Intelligent AP Automation tool that effortlessly digitizes multi-layout and global paper invoices with an astounding accuracy of over 85%.
The suite of AI Bots equipped in the software are constantly learning new vendor formats while seamlessly integrating data between vendors, accounts payable systems, as well as the accounts payable team. The solution also provides advanced analytics to identify anomalies and fraudulent invoices, thereby significantly reducing the risks of invoice fraud.
Moreover, InvoiceIQ enables companies to efficiently streamline their accounts payable processes by drastically reducing manual workflows such as data entry. This ultimately helps businesses save time and money while ensuring all payments are compliant with regulations and policies.
Invoice fraud is a serious problem for businesses all over the world, and it’s important for companies to take steps to protect themselves against this type of theft. By implementing preventive measures such as establishing clear policies and procedures, using automated systems such as invoice matching software and fraud detection tools, monitoring customer payment activity, and investing in AP automation with dual payment controls, businesses can significantly minimize their risks and ensure that all payments are legitimate.
At Decision Engines, our InvoiceIQ solution helps businesses securely streamline their accounts payable process while reducing the risk of fraudulent activity. If you’d like to learn more about how our AI-powered solutions can help your business, please don’t hesitate to contact us. We look forward to hearing from you!