The CFO’s To-Do: How to Avoid Unintentional VAT Fraud

The blog series “The CFO’s To-Do” explores common invoice challenges and issues that CFOs face and provides concrete solutions. Efficient invoice management is crucial to ensuring both healthy cash flow and smooth operations. In this blog post, we delve into a specific issue: invoices addressed to the wrong purchasing company, which, in the worst-case scenario, can lead to unintentional VAT fraud.

The CFO’s Challenge

Most accounts payable departments experience situations where suppliers invoice the wrong purchasing company in various contexts. The reasons for this can vary:

• The company has multiple VAT numbers to which the supplier can send invoices.
• The supplier invoiced the previous VAT/company name even after a merger or consolidation.
• The supplier uses an old VAT number or company name.

Regardless of the reason, this can have significant consequences for the business:

Companies risk committing VAT fraud if invoices are not addressed correctly.

Let’s assume your company has been acquired and, as a result, changed its name. Your suppliers may not be aware of this change, even if you’ve communicated it via email or external channels.

In many cases, the supplier may default to their usual process when creating invoices – not to bother you, but because your company might still be listed under its old name in their system, and comes up automatically.

The challenge for the accounts payable department is that receiving invoices addressed to your old company name generates a lot of manual work. Compliance with VAT regulations is essential, which means the correct name must be stated on the invoice. If you pay this “wrong” invoice, you risk inadvertently violating VAT law, which could lead to severe consequences for your business.

The CFO’s Considerations

Our experience tells us that incorrect company names on invoices should be a focus point, especially during mergers and consolidations, as illustrated above. Many businesses may not anticipate this issue, resulting in various challenges and manual processes regarding control tasks and supplier communication.

The situation is unsustainable and can cause frustration for both you and your suppliers. You must ask suppliers to issue a credit note and provide a new invoice for your updated company name. This creates manual work for both parties, which no one wants. Most companies also aim for a smooth and effective supplier relationship, with as few interactions related to invoice corrections as possible. We’ve covered this topic in more detail in another blog post. Read it here.

To summarize this issue, the CFO wants to:

1. Comply with current legislation.
2. Avoid burdening both their own accounts payable team and suppliers with manual tasks, which inevitably arise due to halted invoices and the associated data validation and supplier communication.

The CFO’s Solution

The good news? The CFO can solve this issue automatically, saving time and resources in the process.

It’s crucial to validate the invoice before it enters your workflow or financial system. Our solution, InvoiceFirewall, can be configured to handle this problem automatically.

The solution validates incoming invoices against the company’s name and VAT number. If there are discrepancies, the invoice will be automatically rejected, and the supplier will be notified with detailed instructions on the necessary corrections. At the same time, the supplier is informed of how the invoice should be addressed correctly in the future, eliminating future errors.

In addition to minimizing the manual work typically involved in ensuring that invoices comply with the law, InvoiceFirewall also removes the uncertainty that often arises during peak periods, illness, or vacation periods. It guarantees a consistent level of control.

Moreover, it’s almost only the imagination that limits what the solution can validate and check. At Enemærke & Petersen, InvoiceFirewall halved the time they spent on invoice processing in just a few months. There’s time to be saved, and the solution can be tailored to meet your exact needs.

Stay tuned for next month’s post in the CFO’s To-Do series.

Author

Anders, our Sales Director, has his finger on the pulse of all the challenges organizations face related to invoice processing.