Supplier Relationship Management

What is Supplier Invoice Fraud and How do you Prevent it?

October 12, 2020
Nate Kearse

Supplier invoice fraud is a real and present threat for accounts payable teams the world over. And the stakes are high. Just a few fraudulent invoices slipping through the net could potentially cost thousands, if not millions of dollars in losses for the organization.

Research finds that small and medium sized businesses are more at risk of being targeted for invoice fraud. About 30 percent of these companies aren’t even aware of the risk. But corporate giants aren’t immune either. Amazon, for example, recently fell victim to a $19 million invoice fraud.

And with the threat of supplier invoice fraud higher than ever due to the disruption caused by the COVID-19 pandemic, it’s never been more important for accounts payable pros to be aware of the risks and doing what they can to mitigate them.


What is supplier invoice fraud

Supplier invoice is any fraudulent activity that, yes, you guessed it, revolves around supplier invoices. It usually occurs when fraudsters impersonate a company’s supplier to trick accounts payable into sending payment into their bank accounts rather than that of the supplier.

These invoice scams come in varying levels of sophistication. For example, fraudsters may simply send accounts payable false invoices through the mail that mimic those of a supplier in hope it’ll be mistakenly paid. It’s not especially complex, but it might slip past a busy accounts payable team up against deadlines.

Another, more sophisticated method, sees criminals hack into the email system of a company’s supplier. This allows them to create and send invoices from a legitimate email address or account. These attacks are difficult for accounts payable teams to spot and can lead to numerous fraudulent invoices getting paid.

Fraudsters may also breach accounts payable directly by posing as a supplier and asking to have their banking details changed in the ERP. That way every legitimate invoice issued by the seller will be paid into the fraudsters accounts—at least until the issue is caught.

Although it’s usually third-parties that are the culprits of supplier invoice fraud, accounts payable must also keep an eye on their regular suppliers as well. Some unethical suppliers might quickly issue two invoices for the same purchase order, for instance, in hope that accounts payable will pay them twice.


10 ways to mitigate the risk of supplier invoice fraud

With fraudsters looking to dupe accounts payable whatever way they can, teams need to ensure they have the right processes and tools in place to stop criminals in their tracks.

Here are ten things every accounts payable team can do to mitigate the risk of falling victim to supplier invoice fraud:


  1. Scrutinize every invoice

We understand that most accounts payable teams are overworked and struggling to keep their heads above water, but that shouldn’t stop them diligently checking every invoice they approve. Teams should pay particular attention to supplier names, invoice numbers contact information, amount invoiced, account numbers and bank details.

2. Use three-way matching where possible

Matching the invoice to the purchase order and order receipt is a great way for accounts payable teams to stop paying illegitimate invoices. While not infallible, it’s highly unlikely that those that commit fraud would fabricate all three documents.

3. Check changes to payment details

Accounts payable should never change a supplier’s payment details from one phone call. Instead they should put in place a multi-step process to validate the request. Teams might want to request email confirmation and also double check with a follow up phone call.

4. Keep an eye out for suspicious behavior

Most B2B transactions follow a pattern. For example, some suppliers will likely issue a certain number of invoices a month. While others may always issue invoices in and around a certain dollar amount. So teams should check with a phone call if suddenly a supplier issues triple the number of invoices they usually would, or if their invoices are for unusually large amounts.

5. Check supplier statements

Accounts payable should always check supplier statements when they arrive. That way they can check that all payments have gone through as they should. It’ll also provide a good reference point should a supplier chase payment for an invoice that accounts payable has already paid.

6. Pay special attention to big payments

Big payments always require special attention. Before paying them, accounts payable might want to speak with the supplier to ensure that they’re crediting the right account.

7. Send payment confirmation to sellers

Accounts payable teams should always let their points of contact let them know they’ve made a payment. That way the supplier can check to see if the payment has landed in their account or whether there are any issues that need addressing.

8. Reconciliation regularly

Accounts payable teams should regularly reconcile their payment by matching expenditure to budget and spotting any irregularities.

9. Don’t let invoices pile up

Processing invoices promptly is crucial to preventing fraudulent invoices slipping through the net. That’s because when accounts payable teams let invoices build up it is tempting to rush through and pay them less attention.

10. Don’t break your processes

When a supplier is demanding payment immediately it can be easy to break the process to keep them happy. Accounts payable should never do that. Instead they should explain to the supplier that they’ll deal with their invoice as quickly as possible and follow their standard process.


It’s time for accounts payable to deploy technology to prevent fraud

Even by following all these steps, there is still a risk that fraudsters will slip through the net. Especially when accounts payable is dealing in paper and manual processes.

That’s just another reason why it’s more important than ever for accounts payable teams to ditch the paper and start working with their suppliers digitally. When they do, they can start deploying E- Invoicing to relieve your AP team from manual process. Then add fraud prevention technology to support them in their fight against fraud and save their businesses thousands in lost revenue.


Find out how Tradeshift is deploying machine learning and artificial intelligence to automate the accounts payable process and mitigate the risk of fraud. 

Learn more about Tradeshift’s B2b E Procurement Marketplace