A Scottish grandmother was sentenced to jail for invoice fraud. She repeatedly stole from the family scrap metal business she worked at, with losses amounting to nearly $2M. Because management didn’t know how to identify fake invoices, the scam continued for many years. Keep reading to learn how to recognize fake invoice red flags and protect your business from the many types of invoice scams.
At Trustpair, we prevent invoice fraud and block fake invoice payments. We constantly monitor your supplier data so you’re 100% protected against B2B payment fraud. Request a demo to learn more!
What is an invoice scam?
Invoice scam definition
An invoice scam (or invoice fraud) happens when an ill-intentioned person gets your company to pay for an illegitimate invoice.
It can happen through cyberattacks, but mainly occurs through social engineering or email compromise, with someone impersonating your real suppliers.
For example, you’ll receive an invoice from your supplier with different vendor account details. As you know the vendor, you don’t question it, so send the transfer to their new payment details. Only when your supplier follows up on their unpaid invoice do you realize that you fell victim to invoice fraud.
The impact of invoice fraud on businesses
Invoice fraud has multi-layered negative impacts on your business:
- Direct financial losses: the money you send to the criminals is, in most cases, lost forever. By the time anyone realizes what has happened, the bank account has been emptied and the fraudsters, are long gone. According to our recent fraud survey, the average third-party fraud loss amounts to $100.000 per event (and fake invoice fraud ranks highly in it).
- Indirect financial losses: the money and resources you spend reporting, investigating, and correcting the fraudulent activity. You can also be fined for non-compliance with your applicable AML regulations.
- Damaged relationships with your suppliers: the business relationships you’ve worked all this time to foster can be gone overnight if you don’t learn how to identify fake invoices. Fraud scams can snowball into a conflict over who is responsible for it, or your vendors simply won’t appreciate the delay in paying them, which is a bad vendor management practice.
- Reputational losses: if word gets out that you were a victim of financial fraud, business can turn very sour. Your other vendors, but also your customers’, and investors’ trust in your company will take a hit.
What are the most common types of fake invoices?
There are many types of invoice fraud — which is why it’s hard to learn how to identify fake invoices. However, there are some common schemes:
- Invoice tempering, where impersonators tamper with the invoice of your real suppliers. For example, they’ll swap your real vendor’s bank account information for their own. Every time you think you’re paying your vendors, you’re actually sending money to criminals.
- Duplicate invoices and overbilling, where ill-intentioned people send a real invoice a second time or inflate the amount that was due to them. The latter happens when an employee (or manager) from your vendor’s business decides to overcharge you and pocket the extra funds.
- Fake vendor fraud, where fraudsters set up a legitimate company and send invoices to your business for goods or services never delivered. That’s what happened to Google and Facebook in 2019, which lost $100M to a scammer.
- Internal fraud, where employees leverage their knowledge and access to your accounts payable processes for their own gain (like with the Scottish grandmother from our introduction).
To protect yourself against these kinds of fraudulent schemes, you need to adequately prevent invoice fraud.
The 7 Red Flags of a Fake Invoice
Here are some of the ways you can identify fake invoices:
New or changed information
The name, payment address, contact info, email, and bank account details on the invoice don’t match with your previously recorded data. Paying attention to any of these changes is key, as they are the biggest red flag of invoice fraud.
Discrepancy between documents
The invoice doesn’t match the purchase order or what you have on your records. It’s essential to keep records and to include various verification steps throughout your procurement process
Increased invoice frequency
A vendor that used to invoice you once a quarter now does it once a month. That could be a sign scammers are copying your supplier and sending invoices in their name, with their bank details.
Unusual numbers
The invoice number follows a random pattern, or the total amount always comes with a specific round number ($1,500) without explanation. Anything that feels off is worth double-checking, as it’s better to be safe than sorry.
Low-quality images
The company’s logo is pixelated, or the colors on the invoice are a slightly different shade. This could mean that scammers have tried to replicate a real company’s graphic scheme to impersonate them.
Numerous typos
There are spelling mistakes in the company’s name, your contact info, the sender’s email address, or the body of the invoice. Scammers might not have English as their first language, or not pay that much attention to details. With the help of AI, this is less likely, but still a warning sign to watch out for.
Sense of urgency
Fraudsters usually create a sense of urgency to encourage employees to pay the fake invoice ASAP, inciting employees to overlook details.
For example, they’ll say that payment is due within 7 days and threaten you with being reported to management or legal forces in escalatingly threatening business emails.
The challenge of detecting invoice fraud
Note that even if your invoice doesn’t show any of those warning signs, it can still be fake. Criminals can be very thorough!
Detecting and preventing invoice fraud is challenging, especially if your business deals with a high volume of invoices, or relies on processing them manually. In the day-to-day hustle, it’s easy for a fake invoice to slip through, which is what scammers rely on. That’s why you need a proactive anti-fraud solution.
How to prevent fake invoices from being successful
96% of US businesses were targeted by at least one fraud attempt in 2023. With fraud on the rise, it’s not about if fraud will happen, but a matter of when. Being proactive means you are less likely to fall victim to financial fraud. Along with learning how to identify fake invoices, here’s what we at Trustpair recommend implementing in your company:
Stronger security measures
Scammers only require one tiny gap to infiltrate your accounts payable workflow and steal from you.
That’s why phishing emails and Business Email Compromise (BEC) scams are so dangerous — often, they’re only the first step to a more elaborate (and costly) scheme.
Tightening up your security processes to avoid invoice fraud looks like:
- Using the segregation of duties principle to ensure no one employee has total control over the invoice payment process.
- Mandating stronger password use and double authentication to access your ERPs and payment/procurement software.
- Having a strong email filter to block suspicious-looking emails.
These are a good starting point to reduce fraud risk that focuses on the human component. To be completely protected against fraudulent invoices, you need to incorporate automation.
Anti-fraud software
Using a good anti-fraud solution is what guarantees that you won’t be a victim to fraud — with fake invoices or other types of fraud.
At Trustpair, we automatically check your vendor data, in real-time, before every transaction is sent to your vendors.
It means that even if a fake invoice slipped through your internal processes, we will catch it before it is paid.
We have access to otherwise hard-to-reach databases internationally, allowing us to do international account validation.
Anti-fraud software is also more effective than manually checking each and every invoice that passes through your company. Manual invoice processing isn’t only time-consuming, it is also error-prone. Trustpair is your go-to solution to eliminate the risk of fake invoice scams and third-party fraud in your company.
Learn more about B2B fraud in our latest fraud study!
Key Takeaways:
- Fake invoice fraud is on the rise. While there are red flags to spot invoice fraud, there can be subtle and don’t guarantee you won’t send funds to scammers.
- The best solution to protect yourself against third-party fraud is to use anti-fraud software like Trustpair. We do automated checks of your vendor data in real time.