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Best Practices to Prevent Invoice Scams

28 November, 2022
5 min read
Terri Miller, Director of Business Operations
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What you'll learn

  • What is invoicing fraud?
  • How to identify invoicing fraud?
  • What are the best practices and tips to prevent invoice scams?
CONTENT
What is invoice fraud?
How do invoice scammers operate?
8 invoice fraud prevention tips and best practices
Too Late! What if I already paid the fake invoice?
How HighRadius eInvoicing solution helps businesses prevent invoice fraud
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! Invoice fraud example

Between 2013 – 2015, a Lithuanian invoice scammer, posing as an employee of a Taiwan-based computer manufacturer, Quanta Computer tricked Google and Facebook into paying over $100 million on false invoices. He used a combination of phishing and invoice fraud schemes to email fake invoices to these tech giants and get the money until he was caught in 2019.

The large volume of invoices often makes it impossible for accounts payable teams to vet each invoice and line item before making payments. And unscrupulous elements take advantage of this to profit illegally. In fact,

Prevent invoice scam

In this article, we discuss the best strategies to identify and prevent invoice fraud.

What is invoice fraud?

Invoice fraud, or invoice scam, is a malpractice that involves manipulating or falsifying an invoice to profit at the expense of the parties involved. For example, it may involve a fraudster notifying your business that a supplier’s payment information has changed and giving new (false) information so they can profit from you.

In other instances of invoice scams, fraudsters intercept a real invoice and send a copy with the bank account information changed to their own. Except for the account number, the fraudulent invoice looks exactly like the real invoice.

How do invoice scammers operate?

Interception of invoices is often the first step in invoice fraud. Scammers may use creative methods to intercept invoices, including:

  • Locating an invoice that has been lost or misplaced
  • Stealing invoices from postal sorting centers or letterboxes
  • Breaking into the IT system of your supplier, and then changing the account number details in the invoice emails received
  • Breaking into your IT systems, and then changing the account number details of the invoice emails you’ve sent your customers

When it comes to changing the account number, scammers have a variety of inventive ideas, such as:

  • Scanning the original invoice and using software to adjust the sender’s details
  • Attaching a letter to the invoice stating that the account number has changed
  • Putting a sticker on the invoice with a fraudulent message

Prevent Invoice Scams

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8 invoice fraud prevention tips and best practices

Here are some measures that your accounts payable and accounts receivable teams should take to prevent invoice fraud:

  1. Educate yourself and your employees

    For the accounts payable team:

    • Business owners must educate themselves and their staff, particularly those in charge of accounts payable and accounts receivables about potential billing fraud.
    • Enforce guidelines that specify how to check invoices before paying them to ensure authenticity and integrity.

    For the accounts receivable team:

    • Encourage your billing, as well as collections teams to ensure checks are in place to identify and ensure that the invoices sent, are not intercepted by the wrong hands (e.g., collectors should repeat the account number details when sending dunning emails).

    HighRadius e-invoicing Solutions

  2. Double-check invoice amounts

    For the accounts payable team:

    • Amounts on invoices can provide clues as to whether the invoice is legitimate or not. For example, if your company requires additional review of invoices over $30,000, bill amounts like $29999.98 should raise red flags.

    For the accounts receivable team:

    • Reiterate the invoice amount via other communication channels such as reminder emails, customer self-service portals, telephonic conversations, etc.
  3. Employ 3-way matching

    For the accounts payable team:

    • Three separate papers must be used to verify an invoice: the invoice itself, a purchase order (PO), and a receipt for goods and/or services.
    • Before paying an invoice, a worker would compare these 3 documents to ensure that all the information is accurate.
    • Double-check and raise the issue if the invoice doesn’t match the other data.

    For the accounts receivable team:

    • The prerequisites for a transaction—the invoice, the purchase order, and the receipt for goods or services—must be provided via email, direct conversation, or any other point of contact (POC). Notify your customers not to pay the invoice and to get in touch with you if any of the details change.
  4. Check on vendors and customers

    For the accounts payable team:

    • Typically, fraudulent invoices are created using fake business names or a real name but a fake address or bank account number.
    • Any new suppliers should be checked to ensure they are legitimate, and you should use Google Maps to locate their addresses.
    • A major red flag is when the address is either residential or a post office box. If the account information for any of your existing suppliers changes, make sure to check it with them directly.

    For the accounts receivable team:

    • In the event that your bank account number changes, make sure to convey the information clearly. Instruct them to contact your team if there is any information mismatch.
  5. Track invoice activity

    For the accounts payable team:

    • It will be easier for you to notice changes if you track invoice activity. If the provider unexpectedly submits more invoices than expected, it might be legitimate, but you may still want to get in touch with them and double-check.

    For the accounts receivable team:

    • If multiple invoices are sent at the same time, notify your clients about them via emails or phone calls.
  6. Implement “fuzzy matching”

    For the accounts payable team:

    • Fraudsters send an almost exact copy of a real invoice and expect that no one will notice that payment is being made to a different account number. Additionally, they may at times change the date, invoice number, or amount. To detect both identical and almost identical invoices, you’ll need software that supports “fuzzy matching.”

    For the accounts receivable team:

    • Provide customers with the real invoices via your POC and suggest they check the received invoice thoroughly before making a payment. Suggest they contact you if any changes are made to the account number or amount.
  7. Automate your accounts payable and receivables processes.

    For the accounts payable team:

    • There are various automated workflows available on platforms for accounts payable, including those that support 3-way matching. This automation increases visibility and decreases fraud and saves time and money.

    For the accounts receivable team:

    • Accounts receivable automation software supports features such as e-invoicing, customer self-service portal, automated dunning, VoIP calls, etc. to ensure that invoices are secure and customers have the option to double-check invoice details using multiple documents/sources.
  8. HighRadius is a leader in Gartner’s Magic Quadrant for invoice-to-cash applications. Talk to our experts to learn how we help prevent invoice fraud.

  9. Don’t switch payment methods without several sources of confirmation

    For the accounts payable team:

    • If there is any change in payment methods, always try to verify with the supplier the request for the change and the exact details of that request.
    • There’s a possibility that your vendor has actually requested a payment change, but if the account details don’t match, you could be dealing with a fraudulent invoice.

    For the accounts receivable team:

    • Let your customers know if there is any change in the payment methods or any other information. Always suggest they double-check invoices to prevent falling victim to scams.

Too Late! What if I already paid the fake invoice?

If you paid the fraudulent invoice and are confused about what to do next or how to proceed, you can proceed with these options:

  • Keep your cool and start by speaking with the provider. Perhaps there was a mistake, and everything turned out well. In many cases, the supplier may be able to take necessary actions based on your report.
  • Whenever you find or suspect fraud, report it as soon as possible to your own bank and the bank of the fraudulent account number.
  • Report the incident to the police and concerned authorities.

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How HighRadius eInvoicing solution helps businesses prevent invoice fraud

Invoices play an important role in the order-to-cash process. With more technology and less time, everyone is adapting to methods that can get work done faster and in a more secure way.

HighRadius’ e-invoicing and payment software assists businesses in streamlining their invoice processing cycles and lowering the number of hours spent on processing, approving, and tracking bills. It also reduces the chances of human error and enables customers and suppliers to communicate with each other quickly & smoothly to identify, report, and prevent invoice fraud.

Schedule a demo to watch our invoicing solutions in action.

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