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Invoice Fraud: A Growing Threat and How to Combat It
Invoice fraud is a significant and growing problem for finance departments worldwide, posing a major financial risk to businesses. Middle-market companies are losing an average of $280,000 annually to invoice fraud, according to Forbes research. This alarming figure highlights the seriousness of the issue.
Globally, finance teams face frequent fraud attempts, typically detecting around one instance of invoice fraud per month. A Forbes survey of 2,750 businesses revealed over 34,000 cases of invoice fraud in one year. The problem is substantial, with 13% of companies encountering up to 20 cases and nearly 1 in 5 identifying between 21 and 30 instances annually. Given these numbers are two years old, it's likely the situation has worsened.
Notable invoice fraud cases:
- A UK stock exchange-related business lost £660K in a fake invoice scam involving 29 invoices in one month.
- Google and Facebook were targeted in a $120M phishing and invoice fraud scheme over two years.
- Detroit Metro Airport paid a contractor $1.5M for an ice-melting product that was never purchased.
- A former employee of a cybersecurity publication generated $6M in fraudulent invoices over four years.
The point is, fraud can strike any company at any time.
Increasing fraud attacks
A 2024 study by Ardent Partners found that 37% of companies experienced more B2B fraud attacks last year than the previous year, while 27% said they did not experience more instances of fraud, almost 30% were unsure, and 7% did not track fraud*. Thus, nearly 75% of respondents likely faced fraud attacks recently. The study also highlighted that fraud risk was among the top three challenges for accounts payable (AP) teams in 2024, alongside high exception rates and slow invoice/payment approvals — both of which are closely linked to fraudulent invoices*.
Lack of awareness
Despite its prevalence, many organizations are unaware of the financial impact of invoice fraud. Forbes found that a quarter of finance professionals either didn't know or couldn't estimate the cost of invoice fraud to their organizations, revealing a critical oversight in financial management. Invoice fraud not only causes financial losses but also harms business relationships and brand reputation. Yet, discussing this issue is often avoided due to its potential damage.
At Basware, compliance is at the heart of everything we do. Enabling our clients to proactively prevent invoice fraud is key to the success of each project. By using Basware’s comprehensive suite of products and processes, clients can effectively manage vendor onboarding, preventing potentially fraudulent suppliers from entering their trading network.
No one is keen to expose their own process weaknesses, but they exist regardless. Waiting or ignoring them is never a good option. Those who have undergone audits know the serious consequences of negligence. Being unaware doesn't shield you from penalties. To understand the cost of non-compliance, consider starting with the potential loss of tax reclaim — a calculation every business should be able to make.
Evolving digital threats
As digital payment methods advance, so do fraud tactics. Cases such as fictitious companies sending bogus invoices, invoices sent for products that are never delivered, duplicate invoices, charity donation invoices, overdue invoice claim scams, free samples followed by an invoice or invoices with suspiciously high amounts of low-cost items are some examples of fraudulent invoice scams discovered previously. These scams exploit both the trust employees place in payment processes and the absence of verification steps for factors such as transactions below certain amounts. Large companies or those accustomed to handling substantial payments, are particularly vulnerable to fraudulent invoices slipping through the cracks among numerous legitimate ones received by the accounts department.
Cybercriminals are exploiting new avenues to defraud businesses, necessitating heightened vigilance and awareness among finance teams. Examples of common scams include:
- Phony vendors: Scammers exploit weak vendor verification processes to submit small, innocuous invoices that evade scrutiny but accumulate substantial sums over time. To combat this, robust vendor vetting procedures are crucial.
- Invoice impersonation: Cybercriminals mimic legitimate vendors, subtly altering invoice details like remittance information. Capture technology and cybersecurity solutions can help detect these scams in daily invoice processing.
- Traditional checks: Despite digital advancements, intercepting mailed checks remains common, especially in the US. Criminals alter payee information to divert funds. With 40% of B2B payments in the US still made by paper checks, as evaluated in a recent Pymnts article, this method remains a significant threat and could be described as an open door to invoice fraud.
Combating fraud
Scammers often use spear phishing to gather personal information, making their payment requests seem legitimate. To prevent fraud, businesses need robust security measures to help employees verify payment requests.
A 2023 study by B2B International, Merchant Risk Council, and partners found that companies that increased their fraud management spending saw significant declines in fraud metrics. Effective use of data and analytics to manage fraud is a top priority for many companies.
To combat invoice fraud effectively, businesses must adopt a multifaceted approach. Embracing technological solutions, adopting industry best practices, and fostering collaboration within the business community are essential steps towards safeguarding against financial losses. By sharing experiences and staying informed about emerging threats, businesses can proactively defend themselves against invoice fraud and protect their financial interests.
Ready to strengthen your business's fraud protections?
Contact our team today to discover how Basware can enhance your invoice compliance and safeguard against fraud. Also, tune in to our webinar, “The Global Challenge in Financial Operations: Managing Complexity, Ensuring Compliance,” featuring insights from Ardent Partners.
For real-time updates on related topics, subscribe to our e-Invoicing Compliance News Blog.
*Chart Source: Ardent Partners, 2024
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