Business advice: how to avoid invoice fraud
SMBs lose thousands each year in invoice fraud. Barclays reported that in the last year alone, invoice scams resulted in average losses of £5,000 to one in seven small businesses.
With an estimated £9 billion lost to invoice fraud annually, small business owners are now more than ever aware of the dangers. However, when digital technology streams through every part of your organisation and task automation leaves you vulnerable to attack, how can you protect your business against costly and frustrating fraud?
When a business experiences fraud, it can leave them out of pocket and with the original invoice still unpaid. These simple tips can stop your company from being the victim of invoicing fraud.
Look out for these red flags
Fraudulent invoices can look identical to legitimate ones, right down to the company name. Some red flags to look out for that can protect your business are:
- Business directory invoices: fake invoices that claim to be for legitimate business directory renewals
- Web domain renewals: watch out for these types of renewals coming from companies with similar names to the web hosting company
- No purchase order: a real invoice will contain the corresponding purchase order and purchase number
- More frequent bills: if you pay monthly for a particular service, look out for extra bills appearing in the same month
Raise staff awareness
Fraud relies upon your accounting practices being outdated. Raise awareness of the issue through staff training on invoice payment procedure that focuses on potential scams. Purchasing procedures and payment processes should be well documented and available to all staff.
Use 3-way matching
Your first line of defence should be 3-way matching. This accounting process matches the internally generated purchase order, shipping documents and the invoice that arrives in the post. Most fraudsters are unable to duplicate all three documents.
Cross-matching these documents is a smart way to safeguard against the payment of fraudulent invoices.
Check on suppliers
Received a change of address notice or new banking details for a regular supplier? Check with them directly whenever you receive this kind of notification. Take the time to cross-check the addresses on any invoices with Google Maps. If you can’t find the premises or the company only use a PO Box then flag up the invoice as potentially fraudulent.
Track invoice activity
If possible, appoint a dedicated purchase agent to keep control of the process end to end. Tracking invoice activity in this way should flag up any changes in invoicing activity.
For example, if a supplier starts to submit a significantly higher number of invoices each month, it’s worth contacting them directly to establish whether the changes are legitimate.
Deal with invoices quickly
If you allow invoices to go unpaid, it becomes more likely that you’ll fail to spot any discrepancies in the rush to pay them. If you’re asked to sign off 100 invoices, you may not have the time to check each one in detail. Quick reconciliation of budget and expenditure will also ensure that you keep an eye on potential fraud.
Dealing with invoices quickly allows you to carry out the necessary checks to avoid fraud. A legitimate business will understand the need to verify each invoice, whereas a fraudster may attempt to inject urgency and pressure you into paying.
Authorise at every stage
Take the time to analyse every invoice you receive and look out for the following signs:
- Misspellings throughout the document
- Changes in the logo, including a change in corporate colours or blurry reproductions.
- A change in bank details or bank details included when they previously haven’t been
- Subtle changes to the email, for example, .co.uk replaced by .com.
- A different contact name or number
- Changes in requested payment methods
Train yourself and your staff to spot these inconsistencies and flag them up as soon as possible.
If it’s practical, have more than one employee check and verify an invoice before payment. The more eyes checking the paperwork, the more likely your business is to spot fraudulent activity.
Using automated processes can help to prevent your business from experiencing invoice fraud. By moving towards e-invoices, you’ll automatically identify paper invoices as suspicious.
Implement automated 3-way matching and ‘fuzzy matching’ to identify missing documents and near-perfect copies of the original and legitimate invoice where the payee is changed.
It can be a challenge to eliminate the risk of fraud entirely. However, through implementing these robust processes and controls, you can mitigate the risk and safeguard against paying a fraudulent invoice.