Phishing, spoofing, ransomware, malware, DDoS attacks, CEO fraud, invoice fraud, and more—the list of cyber threats is long and constantly growing. Businesses face attacks daily, and the finance department is often in the crosshairs.
Our area of expertise is invoice processing within finance functions. Unfortunately, we frequently encounter attempts at invoice fraud. This type of financial crime is a favored tactic among fraudsters. According to a PwC report, 41% of companies worldwide experienced financial crime in the past year. This underscores the severity of the threat and the need for effective countermeasures.
Many assume that payment details on an invoice are always correct. But that’s not always the case. And it’s not always easy to spot fraudulent invoices in time. In this post, we’ll walk you through key defense mechanisms and practical solutions.
Invoice fraud is a form of financial crime where fraudsters send fake invoices to businesses, hoping they will be paid. These scams often involve small amounts that can slip through unnoticed. In some cases, fraudsters pose as suppliers and notify businesses that their bank account details have changed, instructing them to make future payments to a new, fraudulent account.
Both large and small businesses are vulnerable. Large companies receive high volumes of invoices, making it easier for fake invoices to blend in. Small and mid-sized businesses are also at risk since they often lack the technology or resources to scrutinize every invoice thoroughly.
Fraudsters are skilled and creative, making it difficult to spot a fake invoice—especially in a busy work environment. Let’s take a look at some classic fraud tactics:
As mentioned, identifying fake invoices can be tricky, but there are red flags to watch for. If you notice any of the following, proceed with caution:
Your business could be targeted by invoice fraud. Fortunately, there are defense mechanisms you can implement to protect yourself:
Remember to stay extra vigilant during peak periods, such as holidays, month-end, and year-end closings, when fraudsters tend to be more active.
Many businesses have fallen victim to invoice fraud. Here are just two examples (Danish examples):
Internal fraud: Invoice fraud can originate from within the company. In one case, a bookkeeper created fake invoices to embezzle money and fund a gambling addiction. Instead of paying suppliers, the funds were transferred to the bookkeeper’s personal account.
Payment of a Fake Invoice: A construction company unknowingly transferred DKK 10,000 to a fraudulent bank account listed on an invoice. The invoice closely resembled legitimate ones from their usual supplier—the only difference was the altered bank details.
Many businesses receive large volumes of invoices. Manually checking each one for fraudulent details is time-consuming. Verifying bank details, payment deadlines, and fraud indicators requires significant effort.
At efacto, we focus on automating invoice validation. We believe technology-driven validation not only protects against fraud but also optimizes workflows and significantly reduces time spent on manual reviews. By automating invoice validation, your finance team can concentrate on more valuable tasks while minimizing the risk of errors.
With over 25 years of experience in digital invoicing, we’ve developed robust defense mechanisms against invoice fraud.
Our solution, InvoiceFirewall, can be configured to automatically detect changes in payment details or deviations in payment deadlines. If such discrepancies are found, the invoice is flagged for manual review by the accounts payable team. This ensures employees are alerted to irregularities and can take appropriate action.
Additionally, if an invoice is from a new supplier not yet registered in your company’s vendor database, it can be held for review before entering the workflow. This allows you to verify new suppliers before approving payments.
These are just a few examples of fraud-related controls. The possibilities with InvoiceFirewall are nearly endless. The key advantage is that all your supplier invoices contain the necessary information for smooth approval and accounting. See how our solution works here.
Our advice to you: Prevent invoice fraud with technology and strong processes – so you don’t become another number in the statistics.
If you suspect your company has fallen victim to invoice fraud, take immediate action:
Contact the police and report the incident to initiate an investigation.
Notify your bank to stop the payment if it hasn’t been processed yet or if there’s a chance to reverse the transaction.