Invoice Fraud Prevention: What It Is and How to Protect Your Business?

Tuesday 30 May 2023, 3 minute read

Fast-growing businesses may send and receive lots of different invoices every month. But it’s worth looking at these invoices closely - as things might not always be as they seem.

Invoice fraud is a deceptive scheme that involves criminals impersonating your suppliers and submitting fake invoices, or altering the details of genuine requests for payment. And it can lead to some pretty substantial financial losses for unsuspecting companies. Invoice fraud has been on the rise in recent years, with the average UK business now losing over £2,000 to these types of scams. 

To protect your business from the threat of invoice fraud, it’s important to understand what invoice fraud is, the common types to look out for, and what you can do to detect and prevent this type of illegal activity. 

In this article, we’ll explore some of the most common ways criminals commit invoice fraud and guide you through practical steps to protect your business against this pervasive threat. Let’s start with what invoice fraud means:

What is invoice fraud?

Invoice fraud refers to the act of deceiving a business by manipulating domestic or international invoices or creating fraudulent ones with the intention of extracting money unlawfully. 

Invoice fraud typically involves impersonating a legitimate supplier, altering payment details, or creating completely fictitious invoices. 

Common types of invoice fraud

The first step towards invoice fraud prevention is to be aware of the various forms invoice fraud can come in. Here are a few of the most common: 

  1. Phishing scams: Phishing emails are often disguised as legitimate communication from business’ vendors or clients. Fraudsters trick unsuspecting employees into revealing sensitive information or making payments to fraudulent accounts.

  2. Fake invoices: Criminals create invoices for goods or services that were never provided. These invoices often closely resemble legitimate ones, making it challenging to detect the fraud.

  3. Supplier invoice fraud (or ‘authorised push payment fraud’): Scammers impersonate existing suppliers, sending invoices with altered payment details, so that your business makes payments for goods and services you’ve received to the fraudster's account instead of the genuine supplier.

  4. Overpayment invoice fraud: Fraudsters overstate the invoice amount and request a refund for the excess payment. They rely on businesses issuing the refund before realising the original payment was fraudulent.

How to prevent invoice fraud

Prevention is key when it comes to stopping invoice fraud. By implementing robust security measures and educating your employees, you can significantly reduce the risk of falling victim to this type of fraud. Here are some proactive steps you can take:

  1. Employee education and training: Conduct regular training sessions to educate employees about invoice fraud risks, teach them which invoice fraud red flags to watch out for, and ensure everyone understands best practices for handling invoices and payments securely.

  2. Enhance communication security: Encourage your employees to be vigilant and sceptical of unsolicited emails, especially those requesting sensitive information or changes in payment details. Implement email filters and encourage staff to check the request verbally with the supplier before making any type of payment. While many businesses assume that if they’re paying a large Chinese supplier or paying an Alibaba supplier, then the invoice can be trusted, it’s still worth checking with your international suppliers by phone or email as criminals can impersonate anyone or any business globally.

  3. Maintain vendor verification: Regularly review and validate your list of approved vendors. Keep track of contact information and payment details, and verify any changes through established channels before processing payments.

  4. Use payment platforms with in-built payment fraud detection software: Use a payments platform like Crezco that uses machine learning to automatically check for, detect and flag potentially fraudulent transactions.

Crezco can help

Sentinel, our proprietary ML risk system ensures that payers can only ever pay the right recipients and are automatically protected from purchase scams (paying for goods or services that are never received), investment scams (payments into fake investments), and invoice scams (payments into the wrong bank account).

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What to do if you're a victim of invoice fraud

Despite your best efforts, there’s still a chance that your business might fall victim to invoice fraud. If you suspect fraudulent activity or discover a fraudulent invoice, be sure to act quickly and follow these steps:

  1. Document everything: Gather all relevant information, including copies of invoices, emails, and any other communication related to the fraudulent activity. These will be essential when reporting the incident to law enforcement and insurance providers.

  2. Notify your bank: Contact your bank immediately to inform them of the fraudulent activity. They may be able to freeze the accounts and assist in recovering the funds.

  3. Contact Action Fraud: Report the incident to Action Fraud (the UK's national reporting centre for fraud and cyber crime) as soon as possible, providing them with all the evidence you’ve gathered, so they can initiate an investigation.

  4. Inform impersonated suppliers and other business partners: If the fraudulent activity involves a supplier or client, notify them promptly. This can help prevent further fraudulent transactions and alert others in the business community to be cautious.

  5. Review and strengthen your security: Conduct a thorough review of your internal processes and security measures. Identify any vulnerabilities or weaknesses that may have contributed to the fraud and take steps to address them. Update your security protocols, reinforce employee training, and ensure the tools you’re using have in-built fraud detection systems to prevent invoice fraud from happening again. 

How Crezco can help

As we touched one earlier, one of the most effective ways to prevent any kind of business and supplier invoice fraud is to use an open banking payments platform like Crezco to make (and receive) payments safely

Crezco understands the importance of protecting businesses from invoice fraud. That’s why we developed Sentinel; our advanced fraud detection and prevention system. Sentinel is a machine learning algorithm which quickly leverages millions of data points to detect and block fraudulent transactions, ensuring all payments made by your business are legitimate and secure. This advanced security system is part of the reason why Crezco was named the UK’s Financial Services Firm of the Year.

No matter how legitimate an invoice looks, if it was created by someone with malicious intent, Crezco’s built-in fraud detection system will flag that the payment details don’t match the supplier they’re impersonating and will block the payment from going through. 

Final thoughts

Invoice fraud poses a significant threat to businesses of all sizes. But by understanding the nature of invoice fraud, recognising common types of fraud, and implementing preventive measures, you can significantly reduce the risk of falling victim to this costly crime. 
Remember to educate your employees, strengthen payment processes and leverage advanced fraud detection systems built into trusted account-to-account payment platforms like Crezco. By being proactive and vigilant, you can protect your business, finances and reputation from the detrimental effects of invoice fraud, so you can focus on what truly matters - growing your business with peace of mind.

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