How to help protect against billing and invoice fraud

How to help protect against billing and invoice fraud

Staying financially secure in the dynamic small business world can seem like a chess game.

While you're focused on growth, managing people, and keeping customers happy, there's another threat lurking – fraud. And it’s not just cybercrime like hacking and stealing data. Fake invoices and billing scams can drain your hard-earned cash and damage your supplier relationships.

What is billing fraud?

Billing and invoice fraud ranges from phantom billing – charging for non-existent products or services – to padding invoices with unperformed work or exaggerated costs. Fraudsters might also double bill. Charging you twice for the same service or even duplicating invoices.

They may also impersonate suppliers. Creating fake companies with similar names, or make tiny tweaks to real invoices. Such as changing a digit on bank accounts or phone numbers, or altering website domain names to divert payments.

Fraudsters rely on your trust and that busy companies – especially SMEs – may not have the time, resources or people to carry out thorough checks.

And don’t underestimate the threat. AFP Payments 2023 Fraud and Control Survey revealed 65% of businesses experienced attempts or actual incidents of billing fraud in 2022. SMEs are also 2x more likely to be targeted.

It's not just the immediate financial hit for both individuals and businesses. It shakes trust in legitimate companies. Making everyone wary of future transactions. Accusations of fake invoicing can also seriously damage a business’s reputation, impacting partnerships and sales. And the implications can be just as severe for you if you wrongly accuse another company, with unnecessary disputes and potential legal headaches added to the mix.

How to spot fraudulent activity

The good news is several red flags can effectively signal billing and invoice fraud, such as:

• Unexpected charges for products or services you didn’t order or can’t recall.

• Vague billing descriptions or unfamiliar wording. Legitimate invoices should clearly detail the services or products you’re being billed for.

• Unusually high fees. Compare your current invoice to past invoices for the same service or product. A sudden jump in price could be an attempt to pad out the invoice.

• Pressure to pay immediately. Most suppliers offer a payment window. Be cautious if suppliers apply pressure to pay an invoice immediately, especially if they’re new.

• Limited or inconsistent contact information can be a sign of a fake company. Do they have a website? Is their phone number disconnected or going straight to voicemail?

For more information on general cybersecurity, read Small Business Cybersecurity: Common Mistakes to Avoid.

What’s the most effective way to prevent fraud?

There are several more steps you can take to help protect yourself. Technology can be a powerful weapon in tackling billing and invoice fraud and needn’t cost the earth. Think about:

• Automated monitoring systems

These constantly scan transactions in real time. Using clever pattern recognition to spot anything unusual or suspicious before it can drain your bank account. Plus, they can handle lots of data, so they're perfect for businesses that are growing fast.

• Secure payment platforms

Using features like end-to-end encryption and two-factor authentication, these digital payment systems add extra layers of security beyond a password.

• Blockchain technology

Blockchain is a secure system that saves a record of all invoices and payments that are made for your business. Each transaction is verified by a network of computers, making it permanent and visible to everyone involved. This ensures that payments are processed quickly and accurately. As a result, blockchain can enhance security, help to reduce costs, and increase efficiency in processing payments.

• Automated invoice processing systems

These streamline the entire invoice management process, automatically matching invoices with purchase orders and delivery receipts, and flagging any inconsistencies for efficient and accurate handling.

Outside tech, other simple and practical measures include:

• Internal controls. Implement a two-person approval system where one person matches the purchase order against the invoice, and the second checks the supplier is genuine and approves the payment. For larger invoices, include approval from a senior staff member. For an extra layer of scrutiny and security, rotate approval duties across the team.

• Keep on top of invoices. Don't let invoices pile up. Mistakes happen in the rush, so regularly compare them to POs for accuracy. Accounts payable automation software can streamline this process and catch discrepancies more efficiently.

• Do your research. Always vet new suppliers thoroughly. Research them online, check reviews, make sure their website's genuine and confirm contact details.

• Train your team. Educate employees on identifying potential fraud and common red flags.

• Keep a paper trail. Always keep copies of purchase orders, invoices, receipts, and other relevant documents for an invaluable paper trail if there’s a dispute or investigation.

• Carry out regular audits of your payment processes to highlight any weaknesses and tighten security.

• Stay informed. Fraudsters constantly adapt their tactics. Keep up-to-date on the latest billing and invoice fraud schemes by following specialist organisations like The Association of Certified Fraud Examiners (ACFE), subscribing to industry publications or attending relevant webinars.

Billing and invoice fraud can seriously damage your business, draining your cash and damaging your reputation. By understanding the risks and implementing these simple preventative measures, you can safeguard your bottom line and keep your business running smoothly.

To find out more about billing and invoice fraud and how to protect yourself, speak to our V-Hub Digital Advisers today for 1-2-1 support.