How To Deal With Accounts Receivable Frauds To Prevent Revenue Leakage

What you’ll learn


  • Understand how fraud impacts the cash conversion cycle.
  • Walkthrough the multiple types of fraud prominent in the B2B sector.
  • Learn how businesses could leverage technology to fight and mitigate the risks of fraud.

What is the one concern that you hear around the business world? Today, it would have to be the flow of funds, be it, long-term capital or working capital. At HighRadius, we leverage our fintech expertise to help clients with various aspects of their fund flow. In this article, let’s take a deep dive into the topic of fraudulent practices in the accounts receivable realm.

The Powerhouse Of Business: The Working Capital

Credit turned cash is the fuel of any business. The A/R team is a crucial pillar in maintaining a healthy cash conversion cycle. Monitoring the working capital’s health is a critical component of smooth operational activities.

The Virus: What Might Be Affecting The Working Capital

Though A/R teams have learned to navigate their way around the impact of COVID, one eminent challenge they still face is fraud. In the public eye, fraud impacts the company’s reputation and customer experience, and internally, it affects the working capital and the overall financial health.

Let us take a look at the types of fraud that might affect modern-day businesses.

Types Of Fraud In The A/R Space

The types of fraud can be broadly categorized into the ones that are committed by parties functioning outside the organization and those that are committed by people employed by the company. Let’s take a deeper look into both types of fraud:

1. Frauds committed by External Parties:

As businesses scale up, it is critical to be cautious while exploring new opportunities to avoid any potential cases of fraud. Let us take a look at some of the fraudulent activities, businesses need to keep an eye on:

  • Credit Card Frauds: One of the easiest to commit, fraudsters either take over the credit card information to make unauthorized payments or forge customer credit cards to make sham payments.
  • Cheque Frauds: Counterfeit cheques are a big problem as fraudsters might create almost identical false cheques or forge real cheques without the owner’s consent to make fake payments.
  • Kitting and Lapping Schemes: Through kitting and lapping schemes, scammers buy float time against Bounced Checks and alter A/R to take in stolen receivables payments.
  • Email Phishing: Phishing is a common fraud where fraudulent purchases are made by impersonating customers and using their credentials without their consent.
  • Reseller & Storefront Frauds: Offline resellers might end up procuring bulk products to resell. Warehouses might also be working as a business storefront without authorization.
  • Third-Party Skimming: Fraudsters try to make some ‘Money off the top’ to report a lower income. In the process, they try to take just enough cash without getting caught.

2. Frauds committed Internally:

Keeping a vigilant eye helps businesses protect themselves against external threats of fraud. Simultaneously, it is also crucial to practice a strict code of conduct internally to reduce the risk of any potential instances of fraud.

Here are some issues businesses need to keep an eye on:

  • Fraudulent Write-Offs: Creditors try to cover up previous thefts by falsely crediting the amount to a customer account.
  • Selling products without authorization: Much like external parties, sometimes employees might be reselling products without the company’s knowledge hindering the integrity.
  • Customer Details Phishing: At times, employees might end up breaching customer data knowingly or unknowingly. It can put the company at risk of fraud and hamper the customers’ trust.

Now with a proper understanding of the types of fraud that might be affecting business, let’s walk through the impact it has on the order to cash cycle.

The Side-effects: Impact Of Fraud On The Order-to-Cash Cycle

Working capital is one of the hardest hit among the various aspects that are affected by fraud. When it comes to the working capital, embezzlement inevitably leads to a loss and ends up becoming an expense that needs to be written off.

While planned expenses are a part of the business, unplanned write-offs due to fraud can prove to be fatal. Companies should monitor the A/R activities on a weekly, monthly, and quarterly basis to keep an accurate track of what is going on and proactively prevent any potential threat. These frauds can eat up businesses’ bottom line, disintegrating the building blocks of the organization.

Here’s how cases of fraud have affected organizations in the past few years:

Some Fraud Highlights

Internal Control that could help prevent fraud

The Antidote: How To Prevent Fraud

Scammers are doing their homework every day and evolving against the system to commit fool-proof and untraceable fraud. While keeping a vigilant eye and strict practices help, that alone might not be enough to put an end to it. Modern technology enables companies to protect themselves against cons. Banking and data analytics tools can aid businesses against malpractices.

Working with the merchant processor and leveraging the tools they offer could be a game-changer in the current fraud scanning process. Most banks provide fraud detecting tools as a part of their Cash Management Services. While fraud affects businesses, down the line, it might end up affecting their banking partners as well. Teaming up with the bank early on to build a secure forefront could lead to a protected system.

Although adopting a tech-friendly environment can be a challenge initially, introducing machine learning and data analytics into day-to-day AR activities could help scan, detect and avoid potential frauds. An analytics-driven fraud prevention system could help keep a real-time check on the transactions, operational activities, and reporting. It would also provide deep insights into customer behavior leading to a reduction in false positives in fraud identification. It is particularly essential in maintaining a good customer experience.

Even though the process seems a bit complex, leveraging these easy to access tools will lead to a significant reduction in fraud and related theft.Scammers are doing their homework every day and evolving against the system to commit fool-proof and untraceable fraud. While keeping a vigilant eye and strict practices help, that alone might not be enough to put an end to it. Modern technology enables companies to protect themselves against cons. Banking and data analytics tools can aid businesses against malpractices.

Working with the merchant processor and leveraging the tools they offer could be a game-changer in the current fraud scanning process. Most banks provide fraud detecting tools as a part of their Cash Management Services. While fraud affects businesses, down the line, it might end up affecting their banking partners as well. Teaming up with the bank early on to build a secure forefront could lead to a protected system.

Although adopting a tech-friendly environment can be a challenge initially, introducing machine learning and data analytics into day-to-day AR activities could help scan, detect and avoid potential frauds. An analytics-driven fraud prevention system could help keep a real-time check on the transactions, operational activities, and reporting. It would also provide deep insights into customer behavior leading to a reduction in false positives in fraud identification. It is particularly essential in maintaining a good customer experience.

Even though the process seems a bit complex, leveraging these easy to access tools will lead to a significant reduction in fraud and related theft.

Conclusion: How Can Businesses Build Immunity Against Fraud

While fraud presents itself as a substantial threat to modern-day businesses, companies could take multiple measures to protect themselves against potential threats. When armoring up, it is also essential for companies to have standard operating procedures in case a potential fraud is detected. It helps in controlling and mitigating the damage in case a breach happens. Businesses should gear up and utilize technical tools extensively to strengthen their grip over their assets and improve customer experience. Check out this infographic that talks about how you can prevent payment frauds to help your business earn more revenue with reduced risk.

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The HighRadius RadiusOne AR Suite is a complete accounts receivable’s solution designed for mid-sized businesses to put their order-to-cash on auto-pilot with AI-powered solutions. It leverages automation to fast-track key accounts receivable functions including eInvoicing & Collections, Cash Reconciliation, and Credit Risk Management powered by RadiusOne AR Apps to improve productivity, maximize working capital, and enable faster cash conversion. Affordable, quick to deploy, and functionality-rich: it is pre-loaded with industry-specific best-practices and ready-to-plug with popular ERPs such as NetSuite and Sage Intacct. The HighRadius RadiusOne AR Suite is designed to automate labor-intensive processes while streamlining credit and collections activities for faster AR processing, better cash flow and improved profitability.

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