How to Prevent Invoice Fraud

Preventing invoice fraud starts with establishing strong verification and tracking processes to protect your business from fake or altered invoices. Confirm vendor and client information before making payments, using secure invoicing software to store and track all invoices, and implementing multi-step approval workflows to ensure no payment is processed without review. Regular monitoring, employee training, and clear documentation further help detect suspicious activity early, safeguarding your revenue and maintaining trust with clients and vendors.

Verify Vendor and Client Information

Always confirm the identity of vendors or clients before processing invoices. Fraudsters often impersonate legitimate contacts to submit fake invoices.

Best practices:

• Verify email addresses and phone numbers against official company records.
• Confirm banking details directly with the vendor using a known contact.
• Check for slight spelling differences or unusual email domains (e.g., @gmali.com instead of @gmail.com).

Example: A contractor receives an invoice from a supplier claiming a new bank account. Calling the official supplier number reveals the invoice is fraudulent.

Implement a Multi-Step Approval Process

A robust approval process ensures no single person has full control over invoice payments, reducing the risk of fraud.

Key steps:

• Require at least two approvals for invoices above a set threshold.
• Compare the invoice with purchase orders or contracts.
• Confirm receipt of goods or services before payment.

Example:

Use Secure Invoicing Software

Manual processes are prone to errors and fraud. Using secure invoicing or accounting software adds layers of protection.

Benefits:

• Automatic verification of vendor details
• Alerts for duplicate invoices
• Encrypted storage of sensitive data
• Audit trails for all invoice actions

Example: A landscaping company uses an invoicing platform that flags any invoice with altered bank details before payment, preventing a $3,000 fraud attempt.

Educate Employees

Employees are often the first line of defense against invoice fraud. Train staff to recognize red flags and follow protocols.

Topics to cover:

• How to spot suspicious emails or invoices
• Verification steps for new vendors or changed payment details
• Importance of following approval workflows strictly
• Reporting procedures for suspected fraud

Example: A construction company trains its accounts payable team to verify any bank detail changes over the phone with the vendor before payment.

Verify Payment Details Before Each Transaction

Never assume vendor or client payment details are correct, especially if they’ve recently changed.

Verification steps:

• Call the vendor using a known contact number.
• Confirm bank account numbers and routing codes.
• Compare invoice details to existing vendor records.

Example: A contractor receives an invoice from a regular supplier with a new account. Verification reveals a cybercriminal attempted to redirect a $5,000 payment.

Monitor and Reconcile Accounts Regularly

Frequent review of accounts helps detect unusual payments or duplicate invoices.

Best practices:

• Reconcile accounts payable weekly
• Match payments against invoices and contracts
• Investigate discrepancies immediately

Example: A small business identifies a duplicate invoice that was submitted twice by accident, preventing a double payment.

Set Up Alerts for Unusual Activity

Modern invoicing and banking platforms allow you to create alerts for unusual activity.

Examples:

• Payments above a certain threshold
• Changes in vendor banking details
• Multiple invoices from a new vendor in a short period

This proactive monitoring can catch fraud attempts before payments are processed.

Keep Clear Documentation

Maintaining organized and accessible records makes it easier to identify and respond to fraud.

What to document:

• Original invoices and contracts
• Communications with vendors or clients
• Payment confirmations
• Approval logs

Example: In case of a disputed payment, a contractor can quickly show the signed contract, the invoice, and email confirmations to prove legitimacy.

Conduct Periodic Audits

Regular audits of your invoicing process help identify vulnerabilities and enforce compliance.

Audit tips:

• Review past payments for unusual patterns
• Verify all vendor details and approvals
• Test your internal controls for weaknesses

Example: An audit reveals a gap in the approval workflow where invoices under $500 were not consistently checked, prompting a process adjustment.