Paper invoices are too often bogus invoices
A recent study in the UK by the Institute of Directors (IoD) shows that nearly three quarters of UK businesses have experienced invoice fraud. It is a sign of the threat of fraud that businesses face from social engineering and cyber criminals, according to the report.
One way of dealing with bogus invoices is to implement electronic invoice solutions, where any change from a supplier has to be approved by a member of your finance team.
Fraud invoices costs companies a lot of money
Old habits die hard in a finance department, but they have to be changed, as only about 28% of fraud is reported to the authorities, according to the study. That means businesses are losing money on a large scale.
Fraud affects companies’ ability to earn money and return a profit to management and shareholders. It also affects the market’s view of the business’ ability to perform profitably.
If I had to point out the major challenges that the report points out, they would be:
- Around 43% of the employees in the finance department did not know where data was stored physically
- More than 57% of the companies had a cybercrime strategy, but still experienced paper invoice fraud
- More than 49% of the companies trained the employees on cybercrime awareness, but fraud happens anyway
“Fraud affects companies’ ability to earn money and return a profit to management and shareholders.”
What would it be worth for you to be able to trust your data?
Cybercrime is hard to battle alone, that is why you have to form alliances with experts in the field, who can point to a new way of looking at your business.
In the Nordic countries, digitising invoices has been a standard procedure for more than 10 years and the number of fraudulent paper invoices has dropped dramatically. This is because they are now more thoroughly scrutinised due to their significantly lower numbers – they have become a rarity, that naturally draws more attention.
The change from paper to electronic was driven by the Nordic governments that “forced” all their suppliers to send electronic invoices, but the practice has also been embraced by many private companies as well.
By digitising your invoices, you can prevent fraud
The reason digital invoicing can be made less prone to fraud is that paper invoices will become so rare that they will stand out. In addition, the approval and checking processes can be easily automated on digital documents.
With automated approval and authentication, there is a much higher incentive to include invoices of low face-value, invoices that in the past typically would have been paid by default.
The issue in many busy and high-performing finance departments is, that the administrative cost of authenticating, disputing or getting full approval, often ends up costing more than the amount “owed”. Rule-based automation will drive this cost down. Below are three ways e-invoicing can help you prevent fraud:
- Increase control over invoice issuers The first line of defence is the gatekeeping that you can inforce on a digital invoice stream. Basically, it will allow you to select invoice issuers that you proactively accept to receive from. This blocks invoices from unknown or dormant suppliers from reaching accounts payable. Typically, the issuer will receive a notice saying that the invoice could not be delivered.
- Set up business rules for correct invoice information Secondly, it is possible to automate the authentication by implementing business rules that suppliers must accept adherence to before invoicing. These rules can be governed by systems at your invoice service provider, and will usually mean that suppliers must include unique information on the invoice, which can be PO number, internal supplier number or other supplier specific information. If a file is in violation, the returned receipts will likely say something along the lines of: “Invoice rejected due to missing information”.
- Add auto-matching with blocking if violation occurs Finally, there is auto-matching with blocking if the invoice is in violation. This can be done either in your internal invoice workflow system or by your invoice service provider. The latter is the preferable option, as this effectively means that you have not legally received the claim yet, because the rejection and the error notice are handled by a third party. If the order process is also digitised, then the service provider can make a direct match between the purchase order and the incoming invoice.
“One way of dealing with bogus invoices is to implement electronic invoice solutions.”
Want to start the process?
Want to limited the amount of fraudulent invoices? Want to look into how to set up an electronic invoice flow? Then there are some things that you have to take into consideration:
- Ensure top level management approval and commitment
- Device a communication strategy to employees and suppliers
- Get your supplier data in place before talking to solution providers
- Survey the market, find the right secure solution for you
- Screen your supplier mass and activate them
- Be willing to stand your ground. Some suppliers will no doubt object
You can find more information about the way to go about in my article Why a digitised procurement policy is important, and do not hesitate to get in touch with me for further discussions!