Supplier Fraud Invoicing - Everything You Want To Know
Supplier fraud invoicing, or vendor fraud, is the act of sending an unauthentic or fabricated bill to a company, with the goal of illegal personal gain.
According to a Tungsten Network study, a staggering 47% of companies have reported receiving fraudulent payment requests within their recent fiscal year, which makes this a common problem for companies of all sizes.
Read on to find out how to detect supplier fraud invoicing and protect your business.
Not Just A Threat For Large Companies
A stunning fact is that over 33% of SMBs have never heard about vendor fraud. Many falsely think that this is a problem reserved for large companies only, but this is far from the truth. SMBs are vulnerable too, as these attacks increase in number.
Here are some examples of what these scams may look like:
- Anonymous bills from professional fraudsters, sent to a company’s billing email address
- Phishing attacks in the form of invoice notifications, with attachments that contain viruses
- Alteration to billing information that leads to sending funds to the wrong place
The Association of Certified Fraud Examiners claims that businesses of all sizes can lose up to 5% of their annual income to fraud. There are steps you can take to avoid falling into this common trap with proper invoice fraud prevention. One way is to keep an eye out for common indicators of fraudulent activity. Here are some common signs that all SMBs should know about, to prevent fraud and avoid invoicing mistakes.
All duplicate invoices must be detected and checked meticulously. This isn’t always necessarily a case of fraud, but an error. Nevertheless, errors are unwanted and the concept of duplicate bills and mindless paying of bills by businesses is certainly a gap that fraudsters can exploit.
Vague Bills Or Billing Items
Experts recommend that business owners take a thorough look at invoices with unclear or unfamiliar services, terms, and descriptions. If you notice any urgent payment requests from a client, consider it a red flag too.
Abnormal Numbers And Amounts
Keep your eyes peeled for nice, round numbers in invoice amounts. Sums of money are often not neat and rounded-up numbers, and if you see suspicious amounts, it might be an indication of fraud.
You can detect this by teaching Benford’s Law to your staff. For example, it states that the leading digit such as ‘1’ appears 30% of the time whereas ‘9’ appears about 5% in a typical set of numerical data. Knowing what is considered as “odd” can make the difference between being scammed, or not.
Ways To Stay Safe
Now that you know how to detect fraudulent payment requests from suppliers, take a look at the best ways to fight billing scams.
- Create a supplier compliance document and compare your results periodically
- Establish security protocols to check suspicious invoices using secure attestation from suppliers
- Create two to three stages of verification, for every bill
- Confirm any change of banking information on invoices directly with suppliers
- Delegate accounting duties to multiple staff members, in a segregated manner
- Proactively send confirmation messages to suppliers once you complete payments
How AP Automation Can Help
The easiest way to avoid supplier invoice fraud is by automating accounts payable (AP) in your business. This way, you can detect manual errors, irregularities and suspicious bills with ease. Here are some of the pioneering service providers which use automation in accounting processes to avoid fraudulent invoices.
- Streamline accounting processes with automated workflows, including integration with e-commerce apps, on Square Up.
- Use automated custom tax calculations to facilitate smooth audits by using Invoice Ninja.
- Try automated billing reminders before and after the due date to encourage customers to pay securely with Xero.
- Invoice reconciliation with FreshBooks compares incoming and outgoing payment requests to prevent invoicing scams.
- Utilize automated 3-way matching for scam-prevention with QuickBooks where the invoice, PO and delivery report are matched up.
- Capture supplier invoices electronically to compare differences and route approvals with Tipalti.
It is unfortunate to lose money as a result of billing scams, whether you are just starting or scaling up your business.
Nevertheless, the information above will help you detect and prevent such scams, in addition to arming your accounting staff against it, with smart automated processes in place.
Of course, there is no doubt that invoice software for small business structures plays a valuable role in invoice fraud protection, alongside automating systems and preventing errors.